Introduction
Withholding tax on export proceeds is collected under Section 154 of the Income Tax Ordinance, 2001.
Table of Contents
Section 154 of the Income Tax Ordinance, 2001 enunciates as follows:
Withholding Tax on Export Proceeds-Foreign Exchange
“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 (including advance ax) from the proceeds at the rate specified in Division IV of Part III of the First Schedule.
Withholding Tax on Export Proceeds-Foreign Exchange-Inland Back-To-Back Letter of Credit
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.
Withholding Tax on Export Proceeds-Export Processing Zone
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.
Withholding Tax on Export Proceeds-Export House
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.
Withholding Tax on Export Proceeds-Collector of Customs
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.”
- The tax deductible under this section shall be a minimum tax on the income arising from the
transactions referred to in this section.
Withholding Tax on Export Proceeds of Services
According to the Section 154A of the Income Tax Ordinance, 2001, “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 –
- exports of computer software or IT services or IT-enabled services
where the exporter is registered with and duly certified by the
Pakistan Software Export Board (PSEB); - services or technical services rendered outside Pakistan or
exported from Pakistan; - 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; - construction contracts executed outside Pakistan
- foreign commission due to an indenting commission agent;
- other services rendered outside Pakistan as notified by the Board
from time to time; - The tax-deductible under this section shall be a final tax subject to the following conditions:
- the return has been filed;
- withholding tax statements for the relevant tax year have been filed if required under the Ordinance; and
- sales tax returns under Federal or Provincial laws have been filed, if
required under the law; - no credit for foreign taxes paid shall be allowed.
- the person has opted for final taxation.”
Withholding Tax Rates On Export Proceeds
- Goods 1.00%
- Computer Software and IT Services 0.25%
- Other Services 1.00%