FBR collects Rs455 million withholding tax on foreign transactions in seven months

KARACHI: The Federal Board of Revenue (FBR) has collected Rs455 million during July-January 2019 period as withholding tax imposed on foreign transactions through payment cards, sources said on Tuesday.

The new withholding tax was imposed through the Finance Act, 2018 through Section 236Y of Income Tax Ordinance, 2001.

The deduction of tax was made mandatory on amount remitted abroad through credit, debit or prepaid cards.

The rate of tax deduction fixed under this section is one percent of the gross amount remitted abroad for filers and three percent for non-filers.

Sources in the revenue authority said the tax was imposed considering the large number of foreign transactions made through payment cards under various heads, including e-commerce.

Many importers were also paying through payment cards to avoid documentation with the tax authorities, they said. However, with the imposition of new withholding tax, the banks will provide details of tax deduction on such transactions, the sources added.

E-commerce transactions through credit card increased massively by 28.57 percent to Rs7.2 billion during the first quarter (July-September) of the current fiscal year, compared with Rs5.6 billion in the corresponding quarter of the last fiscal year.

Moreover, the e-commerce transactions through debit card increased sharply by 105 percent to Rs4.1 billion during the first quarter of the currentfiscal year, compared with Rs2 billion during the same quarter of the last fiscal year, according to Payment System Statistics (July-September) issued by the State Bank of Pakistan.

The number of credit cardholders increased 11.28 percent to 1.48 million during the quarter under review, compared with 1.33 million in the corresponding quarter of the last fiscal year.

Similarly, the number of debit cardholders increased to 22.47 million, compared with 18.77 million.

The Federal Board of Revenue was already collecting withholding tax on cash withdrawals from both filers

and non-filers, but the withholding tax on non-cash transactions is only applicable on non-filers.

The government through the Finance Supplementary (Second Amendment) Bill, 2019 proposed to withdraw withholding tax on withdrawal of cash from banking system by income tax return filers.

The sources said in the coming months the withholding tax on foreign transactions through payment cards would increase, considering the quantum of the transactions and amount involved.

Meanwhile, the FBR has collected Rs59 million as withholding tax from persons remitting amounts abroad in January.