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Pakistan: Budget 2020 and tax proposals

Pakistan: Budget 2020 and tax proposals

Tax measures proposed in the Finance Bill 2020 would affect certain income tax, indirect tax, and customs provisions.

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There are proposed measures concerning non-residents (both foreign companies and individuals) such as:

  • Imposition of minimum tax on turnover in line with domestic companies as provided in section 113 of the Ordinance; however, when receipts are already subject to withholding tax which constitutes minimum tax (such as in case of services rendered to corporate sector), there would be no additional financial impact.
  • Tax withheld on sale of goods and execution of contracts by a permanent establishment [PE] such as a branch office, would be treated as a minimum tax in the same manner as for services. 
  • Reduction in withholding tax rate from 8% to 3% for certain services rendered by PE of a non-resident in line with similar rates for local companies.
  • Reduction in rate of withholding tax under section 152(4A) on payments regarding imports that form part of cohesive business operations undertaken by non-resident associates. The rate is proposed to be reduced to 20% of the rate provided under section 152(1A) from the existing rate of 30%.
  • Non-application of the "tenth schedule" on the payment of a dividend, fees for technical services, royalties, and insurance and reinsurance premium to a non-resident, meaning no increase in withholding rate even if the non-resident shareholder is not appearing on the "active taxpayers list."
  • Taxation regime of payments made for advertisement services to non-resident media persons relaying content from outside Pakistan; proposed to be changed from final tax to minimum tax.
  • Provisions of section 236P regarding withholding tax on banking transactions not to apply to a "non-resident rupee account repatriable" [NRAR], or a foreign currency account maintained in Pakistan by a non-resident and used for investment in government debt securities issued under the Public Debt Act, 1944. The rate of tax on profit on debt (interest) paid on such investment would also be proposed at 10% (instead of the general rate of 15%).

As proposed, the tax measures generally would be effective 1 July 2020.

Read a June 2020 report prepared by the KPMG member firm in Pakistan

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