Export of IT and IT enabled services Reduced Tax rate

Export of IT and IT enabled services Reduced Tax rate

The Federal Board of Revenue (FBR) has been provided an explanation of the income tax treatment on exports of service as modified by the Finance Act of 2022.

 

To clarify significant changes made to the Income Tax Ordinance of 2001 by the Finance Act of 2022, the FBR released Income Tax Circular No. 15 of 2022-23.

 Read More: Minimum Tax on Turnover under section 113

Through the Finance Act of 2021, a special regime under Section 154A was introduced for the export of IT and IT-enabled services, whereby 1 percent final tax was collected on the realization of export revenues for these services.

 

Additionally, exporters of IT and IT-enabled services were eligible for a 100% tax credit against this final tax under Section 65F provided they met a few requirements therein.

 

The 100 percent tax credit regime under section 65F has been removed in order to simplify the tax regime for exporters of IT and IT-enabled services, and a reduced rate of final tax of 0.25 percent has been provided for those exporters who are registered with the Pakistan Software Export Board (PSEB).

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The rate of tax to be deducted under section 154A shall be:-

Export proceeds of Computer software or

IT services or IT Enabled Services by persons registered      0.25% of proceeds                    

with Pakistan Software Export Board     

 

Any other case                                                                                               1% of proceeds

  Read More: Minimum Tax on Turnover under section 113

Section 65F has been amended in accordance with this. Additionally, the Finance Act of 2022 defined and expanded the definitions of IT services and IT enabled services included in clauses (30AD) and (30AE) of section 2 of the Ordinance.

Previously, the amount of foreign commission due to an indenting commission agent was charged to tax, at the rate of 5%, under sub-section (2) of section 154 of the Ordinance. Now, this rate has been reduced to 1% by incorporating clause (da) in sub-section (1) of section 154A of the Ordinance. Corresponding changes have been made in section 154 accordingly.

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Moreover, provisions of Tenth Schedule will not apply on tax collectible under section 154A of the Ordinance. Necessary change has been incorporated in rule 10 of Tenth Schedule in this regard.

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