Tax on credit, debit-card payments to non-residents hiked by 400%
Payments to non-resident persons substantially impact foreign exchange outflow from country, says FBR
July 31, 2023
- WHT increased from 1% to 5% for ATL, 2% to 10% for non-ATL.
- Around $70 to $100mn paid monthly through credit, debit cards.
- Banks to collect advance tax on any sum remitted outside Pakistan.
ISLAMABAD: In a bid to discourage outflows of foreign exchange reserves, the Federal Board of Revenue (FBR) jacked up the withholding tax (WHT) on payments to non-resident persons through debit cards and credit cards by 400%, The News reported Monday.
In a circular issued last week and titled "number 2 of 2023 for explaining amendments to the Finance Act 2023", the FBR wrote that section 236Y was introduced through Finance Act 2022, whereby payment to non-residents through a debit/credit card was subjected to 1% withholding tax rate for Active Taxpayer List (ATL) persons and 2% for Non-ATL persons.
These payments to non-resident persons substantially impact foreign exchange outflow from the country. So, to discourage unnecessary outflow of foreign exchange reserves, the withholding tax rates under section 236Y have been increased from 1% to 5% for ATL persons and from 2% to 10% for non-ATL persons through the Finance Act, 2023.
This means the FBR has increased tax rates by a whopping 400% for both categories.
According to the estimates shared by the State Bank of Pakistan (SBP) with parliamentarians before the last budget for 2023-24, around $70 to $100 million were utilised monthly for making payments through credit cards or debit cards, bringing the annual amount to around $1 billion.
Through the Finance Bill, the FBR obtained powers under Section 236Y whereby Advance tax on persons remitting amounts abroad through credit or debit or prepaid cards.
Every banking company shall collect advance tax at the time of transfer of any sum remitted outside Pakistan on behalf of any person who has completed a credit card or debit card, or prepaid card transaction with a person outside Pakistan at the rate specified in Division XXVII of Part IV of the First Schedule.
The advance tax collected under this section shall be adjustable.
The Finance Bill 2022 proposed an advance tax rate on the amount remitted abroad through credit, debit or prepaid cards under section 236Y shall be 1% of the gross amount remitted abroad.
