Non-resident companies: Income tax dept levying super tax in negation of double taxation treaties

LAHORE: The income tax department is allegedly levying supper tax in negation of the treaties for the avoidance of double taxation on foreign companies operating in Pakistan, said sources.

They said the department was not ready to honour the fact that such treaties have to be given preference and would prevail over the provisions of income tax law.

However, the department is of the view that the objective of the extraordinary contribution of super tax imposed under the Finance Act 2015 is for the rehabilitation of temporary displaced persons. They further stress that the levy of super tax is a separate feature, therefore, no exception is available to non-resident companies.

It is worth noting that the Double Taxation Treaties (DTTs) also mention super tax separately and independently from the income tax, which is payable in addition to income tax as per the provided threshold of net profit/income at Rs500 million.

It is further worth mentioning that the DTTs between Pakistan and other countries mention the taxes payable in Pakistan as (i) income tax (ii) super tax, and (iii) surcharge. But the income tax department imposes super tax separately under the 2015 Finance Act. The department further differentiates the 2015 super tax with the one mentioned in the DTTs, saying that the legislature is competent to levy multiple taxes on income.

The federal government may enter into a tax treaty, including tax information exchange agreement, multilateral convention, inter-governmental agreement or a similar agreement with a mechanism and ways and means for the avoidance of double taxation or the exchange of information for the prevention of fiscal evasion or avoidance of taxes including automatic and spontaneous exchange of information with respect to taxes on income imposed under the Ordinance, or any other law for the time being in force.

The sources said the department ignores the fact that the Convention related to double taxation is also made applicable to any identical or substantially similar taxes which are imposed after the date of signature of the Convention and all such conventions are signed well before the Finance Act 2015.

Therefore, the taxpayers within the realm of double taxation treaties are either exempt or, where applicable, liable to pay the super tax at reduced rates in terms of their respective treaties.

Copyright Business Recorder, 2023