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IT SECTOR TAXATION IN PAKISTAN 2024
Diving into the intricacies of the Income Tax Ordinance of 2001, we find notable adjustments across various sections IT SECTOR TAXATION IN PAKISTAN 2024:
Section 4C (Super Tax):
Rates increased but unlikely to be applicable to entities engaged in IT exports only due to concept of “imputable income”.
1. Section 152 (Payment to non-residents):
Auto issuance of exemptioncertificate within 30 days of application has been included in section 152(5) to facilitate timely issuance of exemption certificate in respect of payments to non-residents.
2. Section 153 (WHT on IT & IT enabled services):
Withholding tax on localIT & IT enabled services has been Increased from 3% to 4%.
3. Section 154A (Export of services, FTR conditions):
The requirement to file sale tax return for the purpose of claim of Final Tax Regime (FTR) has been abolished.
4. Section 154A (Export of services, 0.25% tax rate):
The tax rate of 0.25% is maintained and fixed at the same rate till June 30, 2026.
5. Section 236Y (Payment through debit/ credit card):
Tax rate increased from 1% to 5%
INCOME TAX ORDINANCE 2001
- Start–up = 100% Tax credit regime (conditions apply)
- Export of IT services with PSEB registration = Final Tax Regime (FTR) with tax rate of 0.25% of export proceeds (conditions apply)
- Export of IT services without PSEB registration = FTR with tax rate of 1% of export proceeds (conditions apply)
- Local IT services or Exporter who does not fulfill conditions =business income which will be taxed based on the status of person i.e., individual, AOP and Company
Startup Definition
- Start-up means business of resident individual, AOP or company
- commenced on or after July 01, 2012
- Person is engaged in technology driven products or services
- Person is registered with PSEB
- Annual turnover is less than Rs.100 million in each of last five years
Start-up Conditions for 100% tax credit
- 100% tax credit is available in the year in which start-up is certified by PSEB and following two years subject to following conditions
- Return has been filed
- Withholding statements have been filed if person is withholding agent
- Sales tax return has been filed if person is required under relevant Federal & Provincial sales tax laws
Start-up Exemption Certificate
- If start-up is engaged in export of technology driven products or services, start-up can obtain exemption certificate from tax deduction under section 154 or 154A as the case may be
- If start-up is engaged in local supply of products or services or both, start-up can obtain exemption certificate from tax deduction under section 153.
- i.e., Start-up has exemption on both his export and local income.
Export of IT Services with PESB Registration
- 0.25% tax will be deducted by banks on receipt of export proceeds in Pakistan which shall be FTR subject to following conditions;
- Return has been filed;
- Withholding statements have been filed if person is withholding
- agent
- No Sales tax return has been filed if person is required under relevant Federal & Provincial sales tax laws;
- No credit of foreign taxes paid is allowed;
Export of IT Services without PESB Registration
- 1% tax will be deducted by banks on receipt of export proceeds in Pakistan which shall be FTR subject to following conditions;
- Return has been filed;
- Withholding statements have been filed if person is withholding agent;
- Sales tax return has been filed if person is required under relevant Federal & Provincial sales tax laws;
- No credit of foreign taxes paid is allowed
FREQUENTLY ASKED QUESTIONS (FAQs)
Q1. What is Final Tax Regime (FTR)?
Answer: FTR means that the tax deducted by banks on export proceeds isfinal tax and no more tax is required to be paid on the income.
Q2. Is a certificate or application required for opting FTR?
Answer: No certificate or application is required for opting FTR. Every year the person just need to file his return showing his income under FTR. However, a person can opt out of FTR and offer his income under Normal Tax Regime (NTR).
Q3. Why would a person opt for NTR?
Answer: A person may opt for NTR if a person has losses or tax credits available due to which he expects to pay lesser tax than FTR. The option to offer tax under NTR is required to be filed along with return every year otherwise the return will be treated under FTR.
Q4. When filing of withholding statements become necessary?
Answer: when a person is withholding agent, common examples are:
▪ Salary – Every employer whose employee has taxable salary
▪ Rent – Every company while for Individual/ AOP – generally when rent is more than Rs.1.5 million per annum
▪ Goods & services – Every company while for individual/ AOP when turnover is more than Rs.100 million
Q5. What about super tax for start-ups?
Answer: For start-ups the income level of start-ups is too low to attract super tax.
Q6. What about super tax for exporters with 0.25% FTR?
Answer: The concept of imputable income applies. A company with gross turnover of approximately Rs.17.5 billion would attract first slab of super tax i.e., 1%.
Q7. What about super tax for exporters with 1% FTR?
Answer: Again, the concept of imputable income applies. A company with gross turnover of approximately Rs.4.4 billion would attract first slab of super tax i.e., 1%.
Q8. What about super tax for local IT service providers?
Answer: The rates of super tax for local service are provided at next slide.
Certainly, here is the table converted into text format:
| S. No | Income Under Section 4C | Rate of Tax (TY 2022) | Rate of Tax (TY 2023 & onwards) |
|---|---|---|---|
| 1 | Exceeding PKR 150 million to PKR 200 million | 1% | 1% |
| 2 | Exceeding PKR 150 million to PKR 200 million | 2% | 2% |
| 3 | Exceeding PKR 250 million to PKR 300 million | 3% | 3% |
| 4 | Exceeding PKR 300 million to PKR 350 million | 4% | 4% |
| 5 | Exceeding PKR 350 million to PKR 400 million | 4% | 6% |
| 6 | Exceeding PKR 400 million to PKR 500 million | 4% | 8% |
| 7 | Above Rs. 500 million | 4% | 10% |
Q9. When filing of sales tax return is necessary for exporter of IT services?
Answer: For exporters in Islamabad jurisdiction, it is mandatory, and all revenue is to be reported as zero rated. For others it is advisable to file sales tax return in whichever jurisdiction you are operating, and report exempt exports. Kindly note that requirement of filing of sales tax returns is now not mandatory to claim Final Tax Regime (FTR) for PSEB registered IT exporters.
Q10. What is taxation of freelancer?
Answer: Freelancer:
▪ Can claim 100% tax credit if start-up conditions are met
▪ Can fall under 0.25% if registered with PSEB and FTR conditions are met
▪ Can fall under 1% FTR if not registered with PSEB but FTR conditions are met
▪ Otherwise, tax is to be paid as normal business income
Q13. Are double rates for non-filers applicable?
Answer: No, double rates for non-filers are not applicable on IT sector FTR.
Q14. What are slab rates of salaries persons and non-salaried persons?
Answer: Please see next slide for salaried person tax rates.
Non-Salaried Individuals & AOP
| S. No | Taxable Income Range (Rs.) | Rate of Tax |
|---|---|---|
| 1 | Not exceeding Rs. 600,000 | 0% |
| 2 | Exceeding Rs. 600,000 but not exceeding Rs. 800,000 | 7.5% of the amount exceeding Rs. 600,000 |
| 3 | Exceeding Rs. 800,000 but not exceeding Rs. 1,200,000 | Rs. 15,000 + 15% of the amount exceeding Rs. 800,000 |
| 4 | Exceeding Rs. 1,200,000 but not exceeding Rs. 2,400,000 | Rs. 75,000 + 20% of the amount exceeding Rs. 1,200,000 |
| 5 | Exceeding Rs. 2,400,000 but not exceeding Rs. 3,000,000 | Rs. 315,000 + 25% of the amount exceeding Rs. 2,400,000 |
| 6 | Exceeding Rs. 3,000,000 but not exceeding Rs. 4,000,000 | Rs. 465,000 + 30% of the amount exceeding Rs. 3,000,000 |
| 7 | Exceeding Rs. 4,000,000 | Rs. 765,000 + 35% of the amount exceeding Rs. 4,000,000 |
Salaried Individuals
| S. No | Taxable Income Range (Rs.) | Rate of Tax |
|---|---|---|
| 1 | Not exceeding Rs. 600,000 | 0% |
| 2 | Exceeding Rs. 600,000 but not exceeding Rs. 1,200,000 | 2.5% of the amount exceeding Rs. 600,000 |
| 3 | Exceeding Rs. 1,200,000 but not exceeding Rs. 2,400,000 | Rs. 15,000 + 12.5% of the amount exceeding Rs. 1,200,000 |
| 4 | Exceeding Rs. 2,400,000 but not exceeding Rs. 3,600,000 | Rs. 165,000 + 22.5% of the amount exceeding Rs. 2,400,000 |
| 5 | Exceeding Rs. 3,600,000 but not exceeding Rs. 6,000,000 | Rs. 435,000 + 27% of the amount exceeding Rs. 3,600,000 |
| 6 | Exceeding Rs. 6,000,000 | Rs. 1,095,000 + 35% of the amount exceeding Rs. 6,000,000 |
Answer: Yes, the rate of withholding tax has increased from 3% to 4%.
Q16. Is there any other way I can have zero income tax for my IT services?
Answer: Yes, get a special technology zone enterprise license and enjoy 10 years exemption.
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