Income Tax Return Filing For Exporters

Income Tax Return Filing for Exporters in Pakistan is mandatory each tax year on the due date as defined in section 118 of the Income Tax Ordinance, 2001. The tax on exports is deducted on export proceeds at the time of export by authorized dealer in foreign exchange, banks/ financial institutions, customs authorities or Export Processing Zone Authority established under the Export Processing Zone Authority Ordinance, 1980.

The tax deducted by withholding tax agents is deposited into government treasury and is treated as final discharge of tax liability. Under final taxation a taxpayer is not required to file normal income tax return, so the Income Tax Return Filing for Exporters is a one time final discharge of tax liability no matter how much profit a taxpayer is making.

Income Tax Return Filing for Exporters in Sialkot

However, through Finance Act, 2015 a new sub-section (5) has been introduced in section 154 of the Income tax Ordinance, 2001. According to this section the exporters have been given an option from tax year 2015 and onwards to opt out of the final tax regime and file their returns of income under normal tax regime.

However, the taxpayer shall exercise the said option every year at the time of filing of their return of income.

Furthermore, the tax deducted under this section on export proceeds shall be treated as minimum tax liability of the taxpayer on export income. Income from sales, other than exports, will be taxed in normal manner as before.

Tax rates applicable on Exporters in Faisalabad Pakistan

Division IV of Part III of the First Schedule of Income Tax Ordinance

• The rate of tax to be deducted under sub-sections (1), (3), (3A), (3B) or (3C) of section 154 shall be 1% of the proceeds of the export.
• The rate of tax to be deducted under sub-section (2) of section 154 shall be 5%
• The rate of tax to be deducted under sub-section (2) of section 153 shall be 1 %.

Documents are required for return filing for an exporter

Since the income of exporters is covered under final tax, so income tax return filing for exporters is simple as compared to others. Following documents are required:

• Export proceeds realization certificate from bank, foreign exchange dealer, customs authorities or Export processing zones
  • The Export proceeds realization certificate contains export amount, tax amount, period in which export was made, exporter’s name, identification number (CNIC, NTN, Incorporation number etc) of the exporter and other details relating to the exporter
• Detail of assets and liabilities (balance sheet, both for individual and corporate taxpayer)
• Wealth statement (individual)
• Personal expenses (individual)

What is export income and how is it taxed in Pakistan?

Export income u/s 154(1) of the Income Tax Ordinance, 2001

Realization of foreign exchange proceeds on account of the export of goods by an exporter.

Who deducts tax u/s 154(1) of the Income Tax Ordinance, 2001

The authorized dealer in foreign exchange shall deduct tax from the proceeds at the rate specified in Division IV of Part III of the First Schedule.

Rate of tax on exports u/s 154(1) of the Income Tax Ordinance, 2001

The rate of tax to be deducted shall be 1% of the proceeds of the export.

Export income u/s 154(2) of the Income Tax Ordinance, 2001

Realization of foreign exchange proceeds on account of the commission due to an indenting commission agent.

Who deducts tax u/s 154(2) of the Income Tax Ordinance, 2001

The authorized dealer in foreign exchange shall deduct tax from the proceeds at the rate specified in Division IV of Part III of the First Schedule.

Rate of tax on exports u/s 154(1) of the Income Tax Ordinance, 2001

The rate of tax to be deducted shall be 5% of the proceeds.

Export income u/s 154(3) of the Income Tax Ordinance, 2001

Realization of the proceeds on account of a sale of goods to an exporter under an inland back-to-back letter of credit or any other arrangement as prescribed by the Board.

Who deducts tax u/s 154(3) of the Income Tax Ordinance, 2001

The banking company shall, deduct tax from the amount of the proceeds at the rate specified in Division IV of Part III of the First Schedule.

Rate of tax on exports u/s 154(3) of the Income Tax Ordinance, 2001

The rate of tax to be deducted shall be 1% of the proceeds of the export.

Export income u/s 154(3A) of the Income Tax Ordinance, 2001

Export of goods by an industrial undertaking located in the areas declared by the Federal Government to be a Zone within the meaning of the aforesaid Ordinance.

Who deducts tax u/s 154(3A) of the Income Tax Ordinance, 2001

The Export Processing Zone Authority established under the Export Processing Zone Authority Ordinance, 1980 (VI of 1980), shall collect tax at the rate specified in Division IV of Part III of the First Schedule.

Rate of tax on exports u/s 154(3A) of the Income Tax Ordinance, 2001

The rate of tax to be deducted shall be 1% of the proceeds of the export.

Export income u/s 154(3B) of the Income Tax Ordinance, 2001

Direct export by exporter and an export house registered under the Duty and Tax Remission for Exports Rules, 2001 provided in Sub-Chapter 7 of Chapter XII of the Customs Rules, 2001.

Who deducts tax u/s 154(3B) of the Income Tax Ordinance, 2001

Every direct exporter and an export house registered under the Duty and Tax Remission for Exports Rules, 2001 provided in Sub-Chapter 7 of Chapter XII of the Customs Rules, 2001 shall, at the time of making payment for a firm contract to an indirect exporter defined under the said rules, deduct tax at the rates specified in Division IV of Part III of the First Schedule.

Rate of tax on exports u/s 154(3B) of the Income Tax Ordinance, 2001

The rate of tax to be deducted shall be 1% of the proceeds of the export.

Taxes on exports are all levies on goods being transported out of the country or services being delivered to nonresidents by residents.

Rebates on exported goods that are repayments of previously paid general consumption taxes, excise taxes, or import duties are deducted from the gross amounts receivable from these taxes, not from amounts receivable from export taxes.

Income subject to final taxation

Income subject to final taxation is that, which are subject to collection or deduction of tax at source and such tax collected or deducted at source is treated as the final tax liability in respect of such income e.g.: –

Income arising from business of:

• Import of goods;
• Supply of goods (other than by manufacturers);
• Execution of contract;
• Export of goods;
• Brokerage, commission and discounts;
• Plying of goods transport vehicles;

Dividend received from a company; and

Prize and winnings from prize bond, raffle, lottery, crossword puzzle, quiz or sale promotion offers.

The above incomes are excluded from the ambit of total/taxable income subject to
normal taxation.

The Federal Board of Revenue (FBR) has given an option to the exporters from tax year 2015 and onwards to opt out of the final tax regime and file their returns of income under normal tax regime under Finance Act 2015.

Section 154 of the Income Tax Ordinance, 2001

154. Exports. — (1) Every authorized dealer in foreign exchange shall, at the time of realization of foreign exchange proceeds on account of the export of goods by an exporter, deduct tax from the proceeds at the rate specified in Division IV of Part III of the First Schedule.

(2) Every authorized dealer in foreign exchange shall, at the time of realization of foreign exchange proceeds on account of the commission due to an indenting commission agent, deduct tax from the proceeds at the rate specified in Division IV of Part III of the First Schedule.

(3) Every banking company shall, at the time of realization of the proceeds on account of a sale of goods to an exporter under an inland back-to-back letter of credit or any other arrangement as prescribed by the Board, deduct tax from the amount of the proceeds at the rate specified in Division IV of Part III of the First Schedule.

(3A) The Export Processing Zone Authority established under the Export Processing Zone Authority Ordinance, 1980 (VI of 1980), shall at the time of export of goods by an industrial undertaking located in the areas declared by the Federal Government to be a Zone within the meaning of the aforesaid Ordinance, collect tax at the rate specified in Division IV of Part III of the First Schedule.

(3B) Every direct exporter and an export house registered under the Duty and Tax Remission for Exports Rules, 2001 provided in Sub-Chapter 7 of Chapter XII of the Customs Rules, 2001 shall, at the time of making payment for a firm contract to an indirect exporter defined under the said rules, deduct tax at the rates specified in Division IV of Part III of the First Schedule.

(3C) The Collector of Customs at the time of clearing of goods exported shall collect tax from the gross value of such goods at the rate specified in Division IV of Part III of the First Schedule.

(4) The tax deductible under this section shall be a final tax on the income arising from the transactions referred to in this section.

“(5) The provisions of sub-section (4) shall not apply to a person who opts not to be subject to final taxation:

Provided that this sub-section shall be applicable from tax year 2015 and the option shall be exercised every year at the time of filing of return under section 114:

Provided further that the tax deducted under this sub-section shall be minimum tax.” 

Income Tax Return Filing for Exporters : FBR gives option to exporters to opt out of final tax regime

The Federal Board of Revenue’s (FBR) income tax circular, explaining Finance Act 2015, said that as per provisions of section 154 of the Income Tax Ordinance, the tax withheld on export proceeds by an exporter is final tax on their income.

Through Finance Act, 2015 a new sub-section (5) has been added in section 154 of the Ordinance whereby the exporters have been given an option from tax year 2015 and onwards to opt out of the final tax regime and file their returns of income under normal tax regime.

Income Tax Return Filing for Exporters

However, the taxpayer shall exercise the said option every year at the time of filing of their return of income.

Furthermore, the tax deducted under this section on export proceeds shall be treated as minimum tax liability of the taxpayer on export income. Income from sales, other than exports, will be taxed in normal manner as before.

For return filing services in Lahore, Islamabad, Karachi, Sialkot, Faisalabad, Quetta, Peshawar and all across Pakistan call on +92 321 8408828 or email info@thebscon.com. For more information on Income Tax Return Filing for Exporters contact us with your queries.

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