The Central Board of Revenue (CBR) has issued a notification for enforcement of the agreement on Avoidance of Double Taxation and Prevention of Fiscal Evasion between Pakistan and Tajikistan to promote and strengthen the economic relations between the two countries. The CBR issued SRO 749(I)/2005 on Saturday spelling out the details of the 'convention' between the two countries.
The agreement covers taxation of income, business profit, shipping and air transport, independent personal services, capital gains, pensions, government services, students and social security payments and other articles of the agreement.
This convention shall apply to persons who are residents of one or both of the contracting states. It shall apply to taxes on income imposed on behalf of the country or of its political subdivisions or local authorities, irrespective of the manner in which they are levied.
It shall apply also to any identical or substantially similar taxes, which are imposed after the date of signature of the agreement in addition to, or in place of, the existing taxes. The concerned authorities of the two states shall notify each other of significant changes made to their tax law.
Under the convention, the profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other state through a permanent establishment situated therein.
If the enterprise carries on business, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment; sales in that other State of goods or merchandise of the same or similar kind as those sold through that permanent establishment; or other business activities carried on in that other State of the same or similar kind as those effected through that permanent establishment.
Profits from the operation of aircraft in international traffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated. Profits from the operation of ships in international traffic may be taxed in the Contracting State in which the effective management of the enterprise is situated.
Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.
Interest arising in a Contracting State and paid to a resident of the other state may be taxed in that country. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent. Interest arising from a Contracting State and paid to the Government or to the Central Bank of the other Contracting State shall be exempt from tax in the first mentioned Contracting State.
IN THE CASE OF PAKISTAN, DOUBLE TAXATION SHALL BE AVOIDED AS FOLLOWS: Where a resident of Pakistan derives income which, in accordance with the provisions of this Convention, may be taxed in Tajikistan whether directly or by deduction, Pakistan shall allow as a deduction from the tax on the income of that resident an amount equal to the income tax paid in Tajikistan. The amount of the tax to be deducted pursuant to the above provision shall not exceed the lesser of the tax which would have been charged on the same income in Pakistan under the rates applicable therein.
Where a resident of Pakistan derives income which in accordance with the provisions of this Convention shall be taxable only in Tajikistan, Pakistan may include this income in the tax base but only for purposes of determining the rate of tax on such other income as is taxable in Pakistan.
The agreement has also given details of other provisions in detail as per SRO 749(I)/2005.
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