FBR lowers withholding Tax to 1% on online platform sales

• The Federal Board of Revenue (FBR) has lowered the rate of withholding tax from 2 to 1 percent on sales conducted through online marketplaces.
• Individuals who do not appear on the active taxpayers’ list (ATL) will no longer have to pay withholding tax.
• A lower rate of final tax of 0.25 percent has been offered for those exporters registered with PSEB.

The Federal Board of Revenue (FBR) has lowered the rate of withholding tax from 2 to 1 percent on sales of products from third parties conducted through online marketplaces by individuals who do not appear on the active taxpayers’ list (ATL).

To explain changes made to the Sales Tax Act of 1990, the Federal Excise Act of 2005, and the ICT (Tax on Services) Ordinance of 2001 by the Finance Act of 2022, the FBR released Circular No. 09 of 2022–23.

The FBR explained that as technology and electronic payment methods advance, online marketplaces are growing.

The withholding tax rate on sales of items from third parties made through their platform has been lowered from 2 percent to 1 percent in order to promote economic activity through online marketplaces, according to FBR.

The FBR clarified the export of services in a circular explaining the income tax budget that was released on Thursday.

The Finance Act of 2021 established a unique regime under Section 154A for the export of IT and IT-enabled services, under which a final tax of 1 percent was collected on the realization of export earnings for these services.

Additionally, exporters of IT and IT-enabled services were eligible for a 100% tax credit against this final tax under Section 65F provided they met the requirements set forth therein.

The 100 percent tax credit regime under section 65F has been removed in order to simplify the tax regime for exporters of IT and IT-enabled services, and a lower rate of final tax of 0.25 percent has been offered for those exporters who are registered with the Pakistan Software Export Board (PSEB).

Section 65F has been amended in accordance with this.

The Finance Act of 2022 has also clarified and expanded the definitions of IT services and IT-enabled services that are found in clauses (30AD) and (30AE) of section 2 of the Ordinance.

Previously, under subsection (2) of section 154 of the Ordinance, the amount of foreign commission owing to an indenting commission agent was subject to tax at a rate of 5%. By including clause (da) in sub-section (1) of section 154A of the Ordinance, this tax has now been lowered to 1%. Section 154 has been updated in accordance with this in the appropriate places.

Furthermore, the tax owed under Section 154A of the Ordinance will not be subject to the provisions of the Tenth Schedule. In this regard, regulation 10 of the Tenth Schedule has been updated, according to FBR.

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