KARACHI: Income tax collection on payment of royalty and fee for technical services surged around 200 percent during the first half of the current fiscal year, as a result of improved monitoring of payments made to non-residents, officials said.
Sources at Large Taxpayers Office (LTO) Karachi said the tax collection from payment of royalty services and fee for technical services jumped around Rs200 million during the first half of this fiscal, compared to Rs66 million in the same period of the last fiscal year.
The sources attributed the significant increase in tax under this head to measures taken by the Federal Board of Revenue (FBR) to stop the untaxed payment to non-residents on services availed by resident Pakistanis.
The sources said the banks were allowing payment to non-residents under various heads by residents Pakistanis without deduction of withholding income tax. Under section 152 of the Income Tax Ordinance, 2001 a person who makes payment to a non-resident is required to deduct withholding tax. There are certain payments to non-residents requiring deduction of withholding tax, which included: services, royalty, fee for technical services, reimbursement of expenses, contracts and dividends etc.
Officials said there were certain exemptions allowed on the payments to non-residents where a person could make payment to a non-resident without deduction of tax.
The FBR had taken up the matter with the State Bank of Pakistan (SBP) to ensure deduction of withholding tax at the time of payment, they said, adding that tax offices had also asked the banks to deduct withholding tax as envisaged under Foreign Exchange Manual.
The total collection of income tax under this head (payments made to non-residents) increased 65 percent to Rs2.324 billion during the first half of the current fiscal year as compared with Rs1.41 billion in the corresponding period of the last fiscal year.