Islamabad: The Federal Board of Revenue (FBR) has proposed a new tax aimed at Pakistan’s exporters, a move most likely to draw criticism in the business community. Both direct and indirect goods exporters will now have to probe a bit farther into their pockets and pay a 1% advance tax on their foreign exchange proceeds from certain transactions.
Legal firm Tola & Tola / Tola Associates has stated that this surprising outcome results from changes made to the Finance Bill 2024. For many exporters, this could seem as unpleasant addition to their financial juggling act.
The amended bill adds a new sub-section 6C to Section 147 which says:
(6C) Notwithstanding anything contained in this Ordinance, the persons specified in sub-sections (1), (3), (3A), (3B) and (3C) of section 154 shall, at the time of realization of foreign exchange proceeds, or realization of the proceeds on account of sale of goods, or export of goods, or at the time of making payment to an indirect exporter, or clearing of goods exported, respectively, deduct or collect, as the case may be, advance income tax under this section at the rate of one percent of such foreign exchange proceeds, or export proceeds, or exports, or payment, in addition to tax collectable or deductible under section 154 of this Ordinance.
In simpler terms, this means that exporters of goods must set aside 1% of their foreign exchange earnings for this new advance tax whether you are an indirect exporter distributing goods to other exporters or a direct exporter shipping items abroad. Indeed, this goes on top of any other taxes you pay under section 154 of the Ordinance.
For Pakistan’s export industry, which is already contending with worldwide lower demand, this additional tax could seem like another obstacle in an already difficult race. Many companies will be asking about the possible effect on their competitiveness in foreign markets.
Although the government probably views this as a means of increasing income, exporters could be left perplexed trying to adjust to this new financial reality. As always in the realm of business and taxation, only time will tell how this shift will be observed.
