Service charges/ commission/ fees: Payments to non-residents brought into the tax net

ISLAMABAD: The service charges/ commission/ fees paid by the exchange companies licensed by the State Bank of Pakistan (SBP) to non-resident persons have been brought under the tax net.

Through Circular No 15 of 2022-23 issued on Thursday, the FBR explained important Amendments made in the Income Tax Ordinance, 2001.

According to the FBR, two new sub-sections (1DC) and (1DD) have been inserted in section 152 of the Income Tax Ordinance for the taxation of Certain Payments to Non-Resident.

Under sub-section (DC), service charges/ commission/ fee, by whatever name called, paid by an exchange company licensed by the State Bank of Pakistan to a non-resident person has been brought under the tax net.

Now these exchange companies have been made liable to deduct tax at the time of making payment of service charges or commission or fee to the global money transfer operators, international money transfer operators or such other persons engaged in international money transfers or cross-border remittances for facilitating outward remittances.

Similarly, under sub-section (1DD), every banking company has been made liable to deduct tax at the time of making payment to card network company or payment gateway or any other person, on any transaction fee or licensing fee or service charges or commission or fee by whatever name called or interbank financial telecommunication services.

This final tax on the income of non-resident person and rates has been provided in Division IV of Part I of First Schedule.

Corresponding changes in this regard have been made in sections 6 and 8 of the Ordinance, the FBR said.

The FBR has also explained the collection of Tax from Persons Remitting Amounts Abroad.

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The Section 236Y was omitted vide Finance Act, 2021.

Now this section is reinserted. Every banking company will collect this adjustable advance tax at the time of remitting money outside Pakistan on behalf of a person who has completed a credit card, debit card or prepaid card transaction with a person outside Pakistan.

The rate will increase by 100% in case of persons not on the Active Taxpayers List.

Some of non-resident Pakistanis may not be required to file income tax return by virtue of applicable provisions of the Ordinance. Therefore, they do not appear on the Active Taxpayers List and hence, likely to suffer the mischief of rule 1 of Tenth Schedule of the Ordinance. In order to facilitate non-resident Pakistanis holding Pakistan Origin Card (POC) or National ID Card for Overseas Pakistanis (NICOP), provisions of section 100BA and rule 1 of the Tenth Schedule will not apply on them in respect of transactions on which tax is collectible under section 236C and 236K of the Ordinance that apply on purchase or sale of immoveable property, the FBR added.

Copyright Business Recorder, 2022