Pakistan, Hong Kong ratify treaty to avoid double taxation

ISLAMABAD: Pakistan and Hong Kong on Monday ratified a treaty signed early this year to stave off double taxation on incomes of their individuals and companies.

“Pakistan and Hong Kong SAR (special administrative region) have ratified the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income,” a statement said. “The tax pact will come into force from November 24.”

The countries signed the agreement on February 17 after negotiations spreading over six years. “The tax pact shall benefit individuals and companies working in Pakistan and Hong Kong SAR by providing safeguards against paying double taxation on the incomes of the residents of both jurisdictions,” the statement said. “The agreement will also provide adequate certainty in respect of taxation rules applicable to cross-border business transactions, dividends, interest and royalties.”

Under the agreement, double taxation will be avoided as any Pakistani tax paid by Hong Kong companies will be allowed as a credit against the tax payable in Hong Kong on the same profits, subject to the provisions of the tax laws of Hong Kong. Likewise, for Pakistani companies, the tax they paid in Hong Kong will be allowed as a deduction from the tax payable on the same income in Pakistan.

Pakistan’s Consul General for Hong Kong Abdul Qadir Memon said this was a great milestone to sign the agreement with Hong Kong, the world’s freest economy. “The agreement would promote economic cooperation, investment and would strengthen the existing bilateral economic relations between Pakistan and Hong Kong,” Memon added.

The consul general said the agreement clearly sets out the allocation of taxing rights between the two jurisdictions, which would eventually help investors, better assess their potential tax liabilities from cross-border economic activities.

Pakistan has so far signed bilateral taxation treaties with at least 64 countries, according to the Federal Board of Revenue’s website. Besides, the country became signatory of a number of multilateral accords to improve the tax system’s efficiency.

Government stepped up efforts to finalise a national action plan to ensure transparency in tax matters and economic affairs to become member of global reform forum Open Government Partnership, a group of 64 nations to implement open government reforms around the world.

Pakistan has already met the eligibility threshold for membership to OGP, achieving 15 out of the 16 criteria. In 2016, the country became a signatory to the Organization for Economic Cooperation and Development’s multilateral convention on mutual administrative assistance in tax matters after signing the convention. The convention, which is currently signed by more than 80 countries, would facilitate international cooperation on national tax laws and provide administrative cooperation among member countries to combat tax evasion.