Tax laws

Pakistan changes tax laws for foreign digital transfers

ISLAMABAD: Pakistan has amended tax laws relating to digital money transfers to non-residents for various financial services.

The country presented its federal budget for the 2022/2023 financial year on June 10, 2022. The amendment was incorporated into the Income Tax Order 2001 through the Finance Bill 2022.

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A number of amendments have been proposed to section 6 of the Income Tax Order 2001:

In accordance with article 6 of the ordinance with the amendments proposed in (Bold):

6. Tax on certain payments to non-residents.— (1) Subject to this Order, tax shall be imposed, at the rate specified in Section IV of Part I of the First Schedule, on any non-resident person who receives a Pakistan source fee, offshore digital fee fees for money transfer transactions, card network services, payment gateway services, interbank financial telecommunications services or fees for technical services.

(2) The tax imposed under subsection (1) on a non-resident person shall be calculated by applying the applicable tax rate to the gross income the revenue amounts referred to in subsection (1).

(3) This section does not apply:

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(a) any royalty where the property or right giving rise to the royalty is effectively connected with a permanent establishment in Pakistan of the non-resident person;

(b) any fee where the services giving rise to the fee are rendered through a permanent establishment in Pakistan of the non-resident person; Where

(c) any fee or technical services charge which is exempt from tax under this Order.

(4) Any Pakistani-source royalties, or fresh received by a non-resident person to whom this section does not apply by virtue of subparagraph (a) or (b) of subsection (3) shall be treated as business income attributable to the permanent establishment in the Person Pakistan.

Here is the current text of section 6 of the Income Tax Order 2001:

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6. Tax on certain payments to non-residents.— (1) Subject to this Order, tax shall be imposed, at the rate specified in Section IV of Part I of the First Schedule, on any non-resident person who receives a Pakistan Source Royalty, Offshore Digital Services Royalty or Technical Services Royalty.

(2) The tax imposed under subsection (1) on a non-resident person shall be calculated by applying the applicable tax rate to the gross amount of the royalty, offshore digital services charge]or technical services.

(3) This section does not apply:

(a) any royalty where the property or right giving rise to the royalty is effectively connected with a permanent establishment in Pakistan of the non-resident person;

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(b) any technical services fee or offshore digital services fee where the services giving rise to the fee are rendered through a permanent establishment in Pakistan of the non-resident person; Where

(c) any fee or technical services charge which is exempt from tax under this Order.

(4) Any Pakistani-source royalty, offshore digital services royalty or technical services royalty received by a non-resident person to which this Section does not apply under clause (a) or (b) of sub -section (3) are treated as business income attributable to the permanent establishment of the person in Pakistan.