FBR is Deducting 1-2% Tax on IT Related Exports

Sources have informed ProPakistani that the Federal Bank of Revenue (FBR) has initiated deduction of tax from the exports earnings of companies providing IT and IT-enabled services at a rate of 1 to 2%.

IT and IT-enabled service providers said that the tax is being deducted through banks on the inflow of every amount recently, starting from the new financial year. There was no such tax previously due to the exemption on IT exports income.

Commercial banks are deducting 1% from every incoming transaction who are income tax filers, whereas tax at the rate of 2% is being deducted on the inflows of the amount in the bank account for non-filers.

Chairman P@SHA Barkan Saeed told ProPakistani that the tax deduction on the exports that are earning is apparently the opposite of the commitment at the end of FBR, which earlier assured IT exporters of a tax credit on the export income.

The deduction of tax through the banking channels will not bode well for the industry as it will discourage inflows of exports and ultimately the most sought-after, foreign exchange.

The shift of the policies of the government from tax exemption to tax deduction also shook the confidence of foreign investors in the country, which might result in the deviation of investment from Pakistan to Bangladesh which announced 100% tax exemption to exporters of IT and IT-enabled services, he added.

FBR, in its statement recently, stated that the exports of computer software, IT Services or IT enabled services are exempt from tax as provided under clause (133) of Part-I of the Second Schedule to the Income Tax Ordinance, 2001. This exemption is subject to the condition that 80% of the export earnings are remitted to Pakistan through the normal banking channel. However, the persons claiming exemptions are subject to minimum tax on their turnover.

There is a proposal to widen the scope of tax concessions available to income from the export of software, IT services, and IT-enabled services. For this purpose, the exemption is being shifted to the tax credit regime. It has been proposed that such income may provide a hundred percent tax credit against tax liability, including minimum tax liability on their turnover, the circular added.

It is pertinent to mention here that exports of IT and IT-enabled services rose to a remarkable level in the last one and a half year. The values of exports are likely to cross $2 billion—an all-time high record, mainly due to the increasing demand for IT services by various countries.

Industry experts say that the export of IT and IT-enabled services may touch the $5 billion mark in the next two financial years if the sector is facilitated well with supportive policies of tax and ease of doing business.

Besides the handsome inflows, the sector will generate hundreds of thousands of jobs in Pakistan, which is a good sign for the IT sector of Pakistan.

    Courtesy: Pro Pakistani

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