The Federal Board of Revenue (FBR) has implemented a revised tax system for exporters of goods, replacing the previous final tax regime. This article unpacks the key changes and their impact on different types of exporters:
Changes Introduced:
- Minimum Tax: The final tax regime is replaced with a minimum tax regime for various entities, including exporters of goods, Export Processing Zone (EPZ) entities, and indirect exporters.
- 1% Advance Tax: A new 1% advance tax is imposed on direct exporters of goods, collected by withholding agents (typically banks) at the time of realizing export proceeds. This replaces the previously proposed 1% advance tax under section 154.
Impact on Different Exporters:
The table below summarizes how these changes affect the tax liabilities of various parties involved in exports:
| Nature of Transaction | Withholding Agent | Prior to Finance Act (FA) | Subsequent to FA |
|---|---|---|---|
| Export of Goods | Banks | 1% Final Tax | 1% Minimum Tax + 1% Advance Tax |
| Indirect Exporter (inland back-to-back L/C arrangements) | Banks | 1% Final Tax | 1% Minimum Tax + 1% Advance Tax |
| Exports by EPZ Entities | EPZA | 1% Final Tax | 1% Minimum Tax + 1% Advance Tax |
| Sale of Goods (Indirect Exporter to Direct Exporter/Export Houses) | Exporter/Export House | 1% Final Tax | 1% Minimum Tax + 1% Advance Tax |
| Clearance of Certain Exported Goods | Collector of Customs | 1% Final Tax | 1% Minimum Tax + 1% Advance Tax |
What it Means:
- Exporters will now pay a minimum tax based on their income, potentially higher than the previous final tax depending on their profitability.
- The 1% advance tax is collected upfront, potentially impacting cash flow. However, it can be adjusted against the final tax liability.
- Overall tax administration is potentially streamlined by combining the minimum tax and advance tax approach.
Uncertainties and Considerations:
- The impact of the new regime on specific sectors and export competitiveness remains to be seen.
- Exporters should consult with tax professionals to understand the detailed implications on their individual situations.
Conclusion:
The revised tax regime for Pakistani exporters signifies a shift from a final tax system to a minimum tax system with an additional advance tax component. While the full picture regarding its effectiveness and impact on exporters is yet to emerge, understanding these changes is crucial for businesses involved in exporting goods from Pakistan.
is this applied on local supplies under inland LC’s