Pakistan Proposes Capital Gains Tax for Non-Residents, Sparking Debate

Pakistan’s Federal Board of Revenue (FBR) has ignited a debate with its proposal to impose capital gains tax (CGT) on non-residents disposing of capital assets in Pakistan. This move, included in the draft budget for 2024-25, aims to tighten tax regulations and address a perceived loophole.

What’s the Issue?

Currently, non-residents in Pakistan enjoy an advantage compared to residents. Under Section 37(6) of the Income Tax Ordinance, they aren’t subject to withholding tax on capital gains. This allows them to potentially avoid paying taxes when selling assets like stocks or real estate.

FBR’s Solution:

The FBR proposes amending the law to require sellers to deduct and deposit capital gains tax when non-residents dispose of capital assets. This aims to create a level playing field and ensure all investors contribute their fair share.

Potential Impacts:

  • Increased Tax Revenue: The FBR expects this measure to generate significant revenue for the government.
  • Fairer Tax System: Proponents argue it promotes a more equitable tax landscape, treating residents and non-residents similarly.
  • Investment Climate: The business community is divided. Some see it as a deterrent to foreign investment, potentially impacting economic growth. Others believe it creates a more predictable tax environment.

Looking Ahead:

The final decision on including this amendment will be crucial. It could influence future investment decisions and Pakistan’s attractiveness as an investment destination.

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