Export of Services including IT Services section 154A
The Finance Act, 2022 has brought about certain amendments in the Income Tax Ordinance, 2001 (the Ordinance, hereafter). Some significant amendments on Export of Services under section 154A are explained hereunder: –
A special regime u/s 154A for export of IT and IT enabled services was introduced through Finance Act, 2021 whereby 1% final tax was collected on realization of export proceeds of these services.
Moreover, hundred percent tax credit was available against this final tax to the exporters of IT and IT enabled services u/s 65F upon fulfilling few conditions mentioned therein.
In order to simplify the tax regime for exporters of IT and IT enabled services, the 100% tax credit regime under section 65F has been withdrawn and a reduced rate of final tax of 0.25% has been provided for exporters of IT and IT enabled services who are registered with the Pakistan Software Export Board (PSEB).
154A. Export of Services including IT Services
(1) Every authorized dealer in foreign exchange shall, at the time of realization of foreign exchange proceeds on account of the following, deduct tax from the proceeds at the rates specified in Division IVA of Part III of the First Schedule –
(a) exports of computer software or IT services or IT enabled services 2[where the exporter is registered with and duly certified by the Pakistan Software Export Board (PSEB).];
(b) services or technical services rendered outside Pakistan or exported from Pakistan;
(c) royalty, commission or fees derived by a resident company from a foreign enterprise in consideration for the use outside Pakistan of any patent, invention, model, design, secret process or formula or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided to such enterprise;
(d) construction contracts executed outside Pakistan
(da) foreign commission due to an indenting commission agent
(e) other services rendered outside Pakistan as notified by the Board from time to time;
(2) The tax deductible under this section shall be a final tax on the income arising from the transactions referred to in this section, upon fulfilment of the following conditions
(a) return has been filed;
(b) withholding tax statements for the relevant tax year have been filed if required under the Ordinance; and
(b) sales tax returns under Federal or Provincial laws have been filed, if required under the law;
(d) no credit for foreign taxes paid shall be allowed.
(3) The provisions of sub-section (2) shall not apply to a person who does not fulfill the specified conditions or who opts not to be subject to final taxation:
Provided that the option shall be exercised every year at the time of filing of return under section 114.
(5) The Board in consultation with State Bank of Pakistan shall prescribe mode, manner and procedure of payment of tax under this section.
(6) The Board shall have power to include or exclude certain services for applicability of provisions of this section.
Export of Services: The rate of tax to be deducted under section 154A shall be :-
|S. No.||Types of Receipts||Rate of Tax|
|1.||Export proceeds of Computer software or IT services or IT Enabled services by persons registered with Pakistan Software Export Board||0.25% of proceeds|
|2.||Any other case||1% of proceeds]|
Corresponding changes in section 65F have been made accordingly. Furthermore, scope of definitions of IT services and IT enabled services contained in clause (30AD) and clause (30AE) of section 2 of the Ordinance has been clarified and widened through the Finance Act, 2022.
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.
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.
For more information on FBR’s new regulations / circulars/ SROs/ amendments in taxation laws in Pakistan please visit https://www.fbr.gov.pk/