Foreign fund managers' earning: FBR demands Rs one billion from SBP

The Federal Board of Revenue (FBR) has asked the State Bank of Pakistan (SBP) to collect taxes estimated around Rs one billion from its foreign funds managers and deposit with the board. Sources told Business Recorder here on Friday that SBP had hired some foreign fund managers to invest its reserves in the global markets.
These fund managers invest SBP-owned money on its behalf in various international markets, when there is night in Pakistan, to get profit of this money lying idle in the country at the time, sources said. These foreign fund managers charge two percent of the amount being invested by SBP through them as consultancy fee, while they also got a share of 25 percent of the profit earned on invested money, sources added.
The FBR officials are of the view that these fund managers are bound to pay tax under section 2(23) of Income Tax Ordinance as Fee for Technical Services. They stated that the financial advisors, whether non-resident of the country or having no office inside the country, should pay the tax.
The FBR has also conveyed to SBP its stance on levying payments made to the non-resident fund managers, as per Income Tax Ordinance 2001 and the bilateral Avoidance of Double Taxation Treaties, sources said.
The board considers that the definition of 'technical service' as given in Section 2 (23) of the Income Tax Ordinance 2001 also covers the 'managerial and consultancy services', and the services of non-resident fund managers fall in the same category, sources added.
As per FBR stance, these financial advisors are bound to pay 12 to 15 percent withholding income taxes to their immediate tax authority, (SBP in this case) under the country's tax law and the board is expecting a collection of more one billion rupees in this regard, sources said.
In view of this, the board has asked SBP to deduct income tax from the gross amount of payments made to these non-resident fund managers by it as service charges. FBR representatives recently held a meeting with SBP officials, but the matter could not be stepped up due to SBP's reservations and objections, sources added.
Sources said that SBP is of the view that the nature of the work done by the non-resident fund managers falls within the ambit of 'business income' rather than 'fee for technical services' and hence, could not be taxed. The matter would now be discussed in the meeting of board officials with State Bank Governor to be scheduled soon, sources added.