Offshore procurement contracts: FBR explains how tax reduction possible

ISLAMABAD: Federal Board of Revenue (FBR) has stated that a tax reduction on offshore procurement contracts to 1 per cent as fixed and final liability is possible only through amendment in the Income Tax Ordinance, 2001.

FBR has conveyed this to Chief Executive Officer (CEO), China Pakistan Economic Corridor (CPEC) Authority, Syed Zakria Ali Shah. This issue was raised in meetings at different forums and official correspondence over a period of time.

The source said on the issue of Withholding Tax on offshore procurement contracts, Revenue Division has intimated the following to the Authority: In order to further facilitate such non- residents with respect to tax rate applicable to offshore procurement contracts an amendment has been made in sub-section(4B) of the section 152 of the Ordinance through the Finance Act, 2020 whereby tax rate on offshore procurement contracts has been reduced from 30 per cent to 20 per cent of the actual tax liability translating into an effective tax rate of 1.4 per cent. It is therefore manifest that relief in tax rate from 2.1 per cent to 1.4 per cent of offshore procurement contracts has already been accorded through the Finance Act.

However, any further relief, i.e., a reduction of tax on offshore procurement contracts to 1 per cent as fixed and final tax liability can only be accorded through amendment in the Income Tax Ordinance, 2001 through the passage of a money bill or alternatively through the promulgation of an Ordinance by the President after considering the merits of this proposal in the light of international best practices.

"Based on clarification from FBR, it is hoped that the matter of withholding tax on offshore procurement contracts will be resolved," said CEO CPEC Authority to concerned stakeholders.

Copyright Business Recorder, 2020