The government is considering over stopping banks from deducting 1% or 2% percent tax on IT foreign remittances to encourage the exporters of the IT sector.
“In a recent meeting, the Minister for Finance, Shaukat Tarin assured the representatives of the IT sector of the imminent removal of one to two percent bank deduction that had been imposed by the banks on every receipt of the exports income on the account of IT and IT-enabled services since the onset of the financial year 2021-22,” said Chairman P@SHA, Barkan Saeed.
The notification from the tax authority to the banks will clarify the decision of the government in this regard. This time IT sector is facing many issues regarding tax compliances. IT experts have been found ready to do compliance but new tax provisions has created many confusions for them. They want clarification from FBR on this issue especially requirement of exemption certificate and deduction of tax by banks.
It is important to mention here that Prime Minister (PM) Imran Khan recently chaired a high-level meeting with the export-oriented sectors after Pakistan attained its highest-ever exports earning of $2.3 billion on a monthly basis.
Tax Credit Regime for export of IT & IT enabled services Business as per Income Tax Ordinance 2001
1- Section 65F was inserted by Tax Laws (Second Amendment) Ordinance 2021 whereby exemption available to IT industry under clause 133; Part IV, Second Schedule was replaced by tax credit regime.
2- Exemption Regime provided that income of IT & IT enabled services export exempt from income tax subject to only one condition i.e. 80% of proceeds were required to be brought into Pakistan.
3- Tax credit regime provided that income of IT & IT enabled services exports is taxable but 100% tax credit will be granted subject to four conditions mentioned in section 65F.
4- However, the conditions were deemed too harsh and there were some drafting issues in section 65F due to which certain taxes became applicable on IT & IT enabled services exports.
5- Now Finance Act 2021 has modified section 65F, removing / softening conditions and also changing the text of section 65F due to which certain taxes became applicable on IT & IT enabled services exports.
6- Now section 65F provides that income from export of IT & IT enabled services would eligible for 100% tax credit subject to the condition that 80% of exports proceeds are brought into Pakistan through normal banking channels and following three compliance conditions, where applicable: a)- Return has been filled b)- Withholding tax statements for the relevant tax year have been filled in respect of those provisions of the Ordinance, where the person is a withholding agent; and c)- Sales tax returns for the tax periods corresponding to relevant tax year have been filled if the person is required to files Sales Tax Return under any of the federal or provincial sales tax laws.
7- The provisions of section 65F relating to tax credit regime have been made applicable from July 01, 2021 and the exemption provisions have been made applicable till June 30, 2021.
Requirement of Exemption Certificate from 1% FTR under section 154A
Section 154A provides that the Federal Board of Revenue in consultation with State Bank of Pakistan shall prescribed mode, manner and procedure of payment of tax under this section
Unless the mode, manner and procedure of payment of tax under section 154A is prescribed, the persons receiving payment against export IT & IT enabled Services may need to be obtain exemption certificate from the availability of section 154A and in the absence of such exemption certificates, the bank may proceed to deduct 1% tax from the export proceeds.
Accordingly, it is advisable for persons engaged in IT & IT enabled Services to seek exemption certificate from FBR till the time procedure is identified.
IT Business | IT Enabled Business | IT Export Services | IT Services | Income Tax Exemption Certificate | Section 154A | Section 65D | Income Tax Ordinance 2001 | Tax credit | FBR | Federal Board of Revenue | Tax Deductions by Banks | Withholding Tax |
