Karachi Tax Bar Association (KTBA) urges the Federal Board of Revenue (FBR) to issue fresh directions to banks for not collecting withhold tax under section 154A of the Income Tax Ordinance from exporters of software, IT and IT enabled services.
KTBA sent a letter to the FBR, where the KTBA said that due to misunderstanding of the “Section 154A – Export of Services” (inserted in the Income Tax Ordinance 2001 via Finance Act, 2021) by financial institutions with regard to withholding tax collection of export proceeds from computer software and IT enabled Services.
KTBA explained that tax exemption available to export of computer software and other IT-enabled Services under clause (133) Part I of the Second Schedule to Income Tax Ordinance, 2001 was replaced (subject to certain stipulations) by one hundred percent tax-credit under Section 65F inserted provisionally via Tax Laws (Second Amendment) Ordinance, 2021 and Finance Act, 2021.
“Taxpayer can now upon complying terms and conditions mentioned in sub-section (2) of Section 65F, without taking specific exemption from concerned Commissioner Inland Revenue, the letter added.”
KTBA said, banks have started deducting tax under the new Section 154A of the Income Tax Ordinance, 2001, on export proceeds of computer software/other IT-enabled services as well. Such exporters were entitled for one hundred percent tax-credit as per Section 65F of the Ordinance.
Some banks have also imposed a requirement to provide withholding exemption certificate from Commissioner Inland Revenue as per section 159 read with section 154A of the ordinance.
The KTBA further explained that rather than enforcing requirement of exemption certificate on the score of section 159 read with section 154A of the ordinance, the FBR should issue directions to banks for not collecting withholding tax under section 154A of the ordinance from exporters of software and IT-enabled services subject to the condition that such taxpayer provide registration from PSEB together with an undertaking as to compliance of section 65F (2).
Software | Exports Services | IT Services | IT enabled Services | Foreign Remittances | Withholding Tax Collections by Banks | Section 154A | Income Tax Ordinance 2001 | 2nd Amendment | FBR | Federal Board of Revenue | Karachi Tax Bar Association | Banks |
