As the digital economy continues to grow and evolve, Pakistan has introduced new taxation policies to support and encourage the export of IT and IT enabled services. In this article, we will discuss recent changes made to the tax regime for IT and IT enabled services exporters in Pakistan.
Previously, under section 65F of the Income Tax Ordinance, 2001, exporters of IT and IT enabled services were entitled to a 100% tax credit against the 1% final tax collected on the realization of export proceeds. However, this regime has now been withdrawn and replaced with a reduced rate of final tax of 0.25% for exporters who are registered with the Pakistan Software Export Board (PSEB).
This new tax regime aims to simplify the tax system for IT and IT enabled services exporters, while still providing them with a competitive tax rate. In addition, the scope of definitions for IT services and IT enabled services under clause (30AD) and clause (30AE) of section 2 of the Income Tax Ordinance has been clarified and widened through the Finance Act, 2022.
Furthermore, changes have been made to the tax rate for foreign commission due to indenting commission agents. Previously, this commission was charged at a rate of 5% under sub-section (2) of section 154 of the Income Tax Ordinance. Now, this rate has been reduced to 1% under clause (da) in sub-section (1) of section 154A of the Income Tax Ordinance. Corresponding changes have also been made to section 154.
It is important to note that the provisions of the Tenth Schedule will not apply to the tax collectible under section 154A of the Income Tax Ordinance. This means that exporters of IT and IT enabled services will not be required to pay any additional tax under this schedule.
In conclusion, the new tax regime for IT and IT enabled services exporters in Pakistan provides a simpler and more competitive tax rate. With the growth of the digital economy, these changes are expected to encourage the export of IT and IT enabled services, contributing to the overall growth and development of Pakistan’s economy.