income Tax For IT Services in Pakistan [Latest Update]

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income Tax For IT Services in Pakistan [Latest Update]. Recently, the Government of Pakistan has realized the importance of the IT sector for the progress of the country’s economy.

Every day, new software houses, call centers, and other IT businesses are being registered to export IT services in Pakistan. The State Bank of Pakistan reported that IT businesses in Pakistan received the US 4.2 billion dollars in three (3) quarters for 2020 on account of exports of IT services. IT businesses in Pakistan received USD 813 million in this amount from exports of computer and information services.

A policy to promote the export of IT services in Pakistan had previously declared that all export-related income for Pakistan would be exempt from income tax until 2025. In March 2021, through an amendment to the Income Tax Ordinance, 2001, Pakistan replaced the word “exemption” with “100% tax credit” on income tax on IT services in Pakistan that are exported to clients outside Pakistan.

income Tax For IT Services in Pakistan

Is it intended that taxes on exports of IT services to Pakistan will be payable by the IT sector?

The benefit of the exemption of income tax on IT services in Pakistan against the export of IT services outside Pakistan will not be available to IT businesses, but the amount of tax that may be charged on such exports will still be refundable to IT businesses.

Now the question is why this shift of Tax policy in the IT Sector?

Most IT companies who benefited from the exemption on income tax for IT services in Pakistan did not bother filing their income tax returns. In order to enforce compliance with income tax returns and to broaden the tax base, the government introduced a shift in policy.

To qualify for a 100% tax credit, all you need to do is file an income tax return, which has now become a requirement for persons engaged in exporting IT services, such as computer software, transcription services.

Which IT sector businesses in Pakistan will be required to file a Tax Return?

As a simple reading of Section 10 of the Income Tax Ordinance, 2001 reveals, every income, whether taxable under the Ordinance or otherwise exempt, is still required to be reported in the Income Tax Return. On the other hand, section 114 of the Income Tax ordinance 2001 provides a list of all personnel required to file a tax return. Section 114 mentions the following individuals: income Tax For IT Services in Pakistan

  • Company
  • Every Partnership Firm
  • Every individual doing business in Pakistan

Section 114 of the Income Tax Ordinance, 2001 mentions several other categories of individuals; however, it is not possible to provide details on each individual in this article. Any of the above, regardless of whether it is a software house, call center, or e-commerce When you run your company or any other Allied IT services business, you have to file an income tax return. income Tax For IT Services in Pakistan

income Tax For IT Services in Pakistan

Can the IT industry claim Tax Credits without filing income tax returns? You cannot claim Tax credit without declaring the number of proceeds received from exporting IT services to Pakistan in your Federal Board of Revenue tax return.

What are the Services Eligible for 100% Tax Credit?

IT services in Pakistan are now subject to 100% tax credit when income is derived from exports of these services. According to section 65F of the Income Tax Ordinance, 2001, two types of IT services are eligible for 100% tax credit as follows:

IT SERVICES

IT services include but are not limited to the following:

  • Software Development
  • Web Development
  • Network Design
  • System Integration
  • Software Maintenance
  • Web Design
  • Web Hosting

IT ENABLED SERVICES

IT services include but are not limited to the following:

  • Inbound or Outbound Call Centers
  • Graphics Design
  • Insurance Claims Processing
  • HR Services
  • Data Entry Operations
  • Telemedicine Centers
  • Remote Monitoring
  • Medical Transcription
  • Accounting Services
  • Locally Produced Television Programs

What are the conditions for claiming 100% Tax Credit

The following seven conditions must be met in order to qualify for a 100% tax credit:

  • At least 80% of export proceeds must have been received in Pakistan by the IT service provider or IT-enabled service provider.
  • On IT services in Pakistan, a 100% tax credit will be available until June 30, 2025.
  • In order to claim a 100% tax credit, the taxpayer must have filed his income tax return for the year in question.
  • IT service providers must deduct or collect the taxes required to be deducted in order to pay them. He has paid any tax due on services rendered in Pakistan or withheld any tax required by law to be withheld and paid to the National Exchequer as a withholding agent. income Tax For IT Services in Pakistan 
  • In the year in which the 100% tax credit is claimed, the IT service provider or IT enabled service provider filed withholding tax statements with FBR as required under the law.
  • If a 100% tax credit is claimed in a particular tax period, the IT service provider or IT-enabled service provider must have filed sales tax returns for those tax periods. Returns filed with a provincial sales tax authority, such as the Punjab Revenue Authority in Punjab, are considered sales tax returns.
  • The IT service provider or IT-enabled service provider/exporter must be registered with the Pakistan Software Export Board (PSEB).

The tax paid by IT service providers, including IT service providers and IT-enabled service providers, on account of minimum tax and final tax will now be reimbursable at 100%.

The best law firm in Lahore is Hamza and Hamza Law Associates. We have experienced tax lawyers at our law firm who assist and resolve the tax concerns of IT sector businesses in Pakistan.

Since they have been the best law firm in Lahore for many years, they have gained ample experience in handling and resolving concerns related to Income Tax on IT services in Pakistan.

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income Tax For IT Services in Pakistan

income Tax For IT Services in Pakistan
income Tax For IT Services in Pakistan

 

Are our software services taxable?

The maintenance of packaged software (being goods) is also subject to service tax. . Services provided in relation to advice, consultancy, and assistance on matters related to IT software shall be leviable to service tax under the IT software service

Is GST charged on software?

GST on IT services will attract 18% on software services provided by software companies. GST will increase the price of purely software services.

What is the tax rate on services?

Currently, the GST rate is 5% (GST) in Alberta, British Columbia, Manitoba, the Northwest Territories, Nunavut, Quebec, Saskatchewan, and Yukon. In Ontario, the tax rate is 13% (HST). New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island charge 15% (HST).

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