Tax collection on payment to non-residents rises by 66pc

KARACHI: Tax collection on payment to non-residents surged by 66 percent during the first nine months (July-March) 2020/21 due to the measures taken by the tax authorities to stop revenue leakage, sources said on Tuesday.

The tax collection on payment to non-resident increased to Rs3.62 billion during the first nine months of the current fiscal year compared with Rs2.18 billion in the corresponding months of the last fiscal year.

The tax collection on payment to non-residents increased by 170 percent to Rs605 million in March compared with Rs223 million in the same month of the last year.

The sources said banks are allowing payment to non-residents under various heads by residents Pakistanis without deduction of withholding income tax. They said under section 152 of the Income Tax Ordinance, 2001 a person who makes payment to non-resident is required to deduct withholding tax.

There are certain payments to non-residents requiring deduction of withholding tax, including services, royalty, fee for technical services, reimbursement of expenses, contracts and dividends.

There are certain exemptions allowed on the payments to non-residents where a person can make payment to non-resident without deduction of tax. However, the person is required to obtain an exemption certificate from the concerned Commissioner of Inland Revenue.

The sources said the Federal Board of Revenue (FBR) has taken up the matter with the State Bank of Pakistan (SBP) to ensure deduction of withholding tax at the time of payment. Further, tax offices also asked the banks to deduct the withholding tax as envisaged under Foreign Exchange Manual.

The Foreign Exchange Manual regarding payments to on various heads to non-resident stated: “It will be the exclusive responsibility of the Authorized Dealers [banks and exchange companies] to ensure that income tax has been correctly deducted from the amount payable to the foreign beneficiaries and paid to the income tax authorities or exemption certificate from the income tax authorities is called and recorded with the Authorized Dealers.”

The sources said that these measures had helped the FBR to improve the revenue collection under this head. The measures were taken in December last year and since then the tax collection under this head is continuously improving.