Changes in Taxation for Information Technology Sector in Federal Budget 2023

The Federal Budget 2023 has brought many changes to the taxation policies in Pakistan, especially for the Information Technology (IT) sector. There were rumors about a 30% tax on earnings from YouTube and social media platforms like TikTok, but the government did not impose such a high rate of tax. However, there are still many implications for the IT sector in the budget, which we will discuss in detail below.

Increase in Sales Tax for IT Services in Federal Capital Territory The government has increased the sales tax for IT and IT enabled services from 5% to 15% in the Federal Capital Territory. This increase in tax rate will affect businesses and individuals providing IT services in the capital.

Reimplementation of Advanced Tax on Credit Card Transactions The advanced tax on credit card transactions has been re-implemented, which means that every time you use your credit card for a transaction, you will be charged a certain percentage of tax in addition to the transaction amount. This tax will be deducted at source by the bank or credit card company.

Increase in Tax on Offshore Digital Services The tax on offshore digital services has been raised from 5% to 10%. This tax applies to all digital services provided from outside Pakistan, which are not subject to any other tax in the country. This includes services like online advertising and consulting.

Reduction in Sales Tax on Call Centers On the positive side, the government has reduced the sales tax on call centers from 17% to 15% in the Federal Capital Territory. This is good news for call center businesses as it will reduce their tax burden.

Replacement of Tax Credit Regime with Final Tax Regime The tax credit regime has been replaced with a final tax regime. The option of a normal tax regime is also available. Under this new system, a tax rate of 0.25% is applicable on all export proceeds subject to registration with PSEB (Pakistan Software Export Board) and filing of withholding statements, income tax return, and sales tax return filing.

Conclusion The Federal Budget 2023 has brought some changes to the taxation policies for the IT sector in Pakistan. While some changes, such as the increase in sales tax and tax on offshore digital services, may negatively impact the sector, the reduction in sales tax for call centers is a positive move. The replacement of the tax credit regime with a final tax regime will also have implications for businesses exporting IT services. It is important for businesses and individuals in the IT sector to stay updated on these changes to comply with the new taxation policies.

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