IT & IT-enabled services: Reduced rate of final tax provided to exporters registered with PSEB

ISLAMABAD: A reduced rate of final tax of 0.25 percent has been provided for exporters of the IT and IT-enabled services who are registered with the Pakistan Software Export Board (PSEB).

Through an income tax budget explanatory circular issued by the FBR here on Thursday, the FBR has explained the export of services.

A special regime u/s 154A for export of IT and IT enabled services was introduced though the Finance Act, 2021, whereby, one percent final tax was collected on the realization of export proceeds of these services. Moreover, hundred percent tax credit was available against this final tax to the exporters of IT and IT enabled services u/s 65F upon fulfilling few conditions mentioned therein. In order to simplify the tax regime for exporters of IT and IT enabled services, the 100 per cent tax credit regime under section 65F has been withdrawn and a reduced rate of final tax of 0.25 per cent has been provided for exporters of IT and IT-enabled services who are registered with the PSEB. Corresponding changes in section 65F have been made accordingly.

Furthermore, scope of definitions of IT services and IT enabled services contained in clause (30AD) and clause (30AE) of section 2 of the Ordinance has been clarified and widened through the Finance Act, 2022. Previously, the amount of foreign commission due to an indenting commission agent was charged to tax, at the rate of five per cent, under sub-section (2) of section 154 of the Ordinance. Now, this rate has been reduced to one per cent by incorporating clause (da) in sub-section (1) of section 154A of the Ordinance. Corresponding changes have been made in section 154 accordingly. Moreover, provisions of Tenth Schedule will not apply on tax collectible under section 154A of the Ordinance. Necessary change has been incorporated in rule 10 of Tenth Schedule in this regard, the FBR added. The FBR has also issued Circular No 09 of 2022-23 to explain important amendments in the Sales Tax Act 1990, Federal Excise Act, 2005 and ICT (Tax on Services) Ordinance, 2001 through Finance Act 2022.

The FBR has reduced the rate of withholding tax from two to one percent on sales of third-party goods of persons not appearing in active taxpayers list (ATL) made through online market platforms.

The FBR explained that the online market places are expanding with the growth of technology and digital payment modes. In order to facilitate the economic activity through online market places, the rate of withholding tax on sales of third party goods of persons not appearing in ATL made through their platform has been reduced from two per cent to one per cent, the FBR added.

Copyright Business Recorder, 2022