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Pakistan Issues Clarification on Tax Exemption for Exported IT Services and Proposed Shift to a Tax Credit — Orbitax Tax News & Alerts

Pakistan's Federal Board of Revenue has issued a clarification on the tax exemption for exported IT services, including a proposal to shift the exemption to a tax credit regime.

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FBR ISSUES THE CLARIFICATION ON TAX EXEMPTION FROM INCOME OF EXPORTED IT SERVICES

Federal Board of Revenue (FBR) has clarified news circulating on social media about a proposal to withdraw exemption available to income from exports of computer software or IT services or IT enabled services. FBR has clarified that under the current legal dispensation, the exports of computer software, IT Services or IT enabled services is exempt from tax as provided under clause (133) of Part-I of the Second Schedule to the Income Tax Ordinance, 2001. This exemption is subject to condition that 80% of the export earnings are remitted to Pakistan through normal banking channel. However, the persons claiming exemptions are subject to minimum tax on their turnover.

There is proposal to widen the scope of tax concessions available to income from the export of software, IT services and IT enabled services. For this purpose, the exemption is being shifted to tax credit regime. It has been proposed that such income may be provided hundred percent tax credit against tax liability including minimum tax liability on their turnover. The proposal enhances the scope of concession to the IT sector contrary to the news circulating in social media.