The Federal Board of Revenue (FBR) collected one billion rupees in withholding tax revenue on funds transferred abroad through credit and debit cards in a year, official statistics showed.
The government opened the avenue for revenue collection a year ago considering the growing trend of payment through plastic cards.
A new section (236Y), inserted into the Income Tax Ordinance 2001 through Finance Bill 2018, bounded banks to collect one percent advance tax from filers of income tax returns and three percent from non-filers who transferred money abroad. Banks are required to collect advance tax at the time of transfer of any sum remitted outside Pakistan on behalf of any individual who has completed a credit, debit or prepaid card transaction with a foreign resident. The tax on non-filers was revised down to two percent in the Finance Act 2019.
The amount deducted against the outward remittances is adjustable against the total income tax liability of an individual. “The amount deducted on such transactions can only be adjusted for return filers” FBR
Sources in the FBR said the tax was imposed considering the large number of foreign transactions made through payment cards under various heads, including ecommerce. Pakistan’s ecommerce sales are projected to cross the $1 billion mark by 2020 as compared to $622 million recorded in 2017.
The State Bank of Pakistan (SBP) said the total number of payment cards reached 42.2 million till March 31, 2019. Of them, number of debit cards was 23.9 million, automated teller machine cards (8.6 million), credit cards (1.6 million), pre-paid cards (0.2 million) and social welfare cards (7.7 million). In January-March 2019, 148.9 million transactions valuing Rs1.68 trillion were processed by plastic cards, of which transactions processed by debit cards had the highest share of 82.1 percent in volume and 86.2 percent in value of transactions, the SBP said.
Many importers were also paying through payment cards to avoid documentation with the tax authorities. However, with the imposition of new withholding tax, the banks would provide details of tax deduction on such transactions, the sources said.
The tax structure has been changed from July 1, 2019. Under the revised structure one percent withholding tax would be applicable on fund transfers made through debit and credit cards. However, individual not appearing on the active taxpayer list would pay two percent of the amount remitted abroad. The Federal Board of Revenue included 2.493 million on the active taxpayers list after they filed income tax returns for the tax year with returns filing deadline expiring on August 9. The FBR expected the number of returns might cross 2.5 million.
Source: FBR, SBP, The News
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