Exclusive: FBR is Deducts 1-2% IT Related Exports Tax

Sources told ProPakistani that a tax deduction from export profits of IT and IT services providers was begun by the Federal Bank of Revenue (FBR) at a rate between 1% and 2%.

IT and IT service providers have claimed that, starting with the next financial year, the tax is being deducted by banks from each input. Previously, there was no such tax due to the IT exemption.

Business banks deduct 1% from every income tax filer transaction, and at a rate of 2%, the tax is deducted from the inflows of the money into the non-filers bank account.

President Barkan Sayed P@SHA informed ProPakistani that the export tax deduction was evidently the reverse of the engagement at the end of the FBR that previously guaranteed IT exporters of an export income tax credit.

Tax deductions via banking channels will do nothing for the business as it will discourage export inflows and, in the final analysis, the most popular foreign exchange.

The move from fiscal exemption to tax deductions also damaged foreign investment confidence, which may lead to a diversion of investment from Pakistan to Bangladesh announcing a 100% tax exemption for IT and IT exporters, he noted.

FBR recently stated in its statement that the exportation, as allowed for in Part I of Article (133), of Part II of the Income Tax Regulations, 2001, of computer software, IT or IT services enabled is free from tax. This exemption is provided that 80% of export revenues are sent via the usual bancary channel to Pakistan. Persons applying for exemptions, however, are subject to a minimum turnover tax.

There is a proposal to expand the tax discounts on export revenue for software, IT services and IT-enabled services. The exemption is moved to the tax credit scheme for this reason. Including a minimal tax responsibility in its turnover, the circulary has stated that this revenue may give a tax credit of one hundred percent.

It is important to note here that in the previous one and a half years, IT and IT exports have risen to a spectacular level. The export values are projected to reach 2 trillion dollars — a record of all times, largely because different countries are growing need for IT services.

Industry analysts estimate that in the following two financial years, exports of IT and IT-enabled services may get $5 trillion if the industry is adequately supported by tax policies and easy operations.

In addition to the beautiful inflows, hundreds of tonnes of employment will be created in Pakistan, which is a positive indication for Pakistan's IT sector.

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