Senate body rejects FBR proposal to tax offshore digital services

Islamabad : Pakistan’s tax authorities on Friday informed the Senate panel that Organisation for Economic Cooperation and Development (OECD) placed one dozen action plans for making part of tax laws in Pakistan so the FBR made all-out efforts to expand its jurisdiction outside the country in line with best international practices.

However, treasury benches especially Senator Musadik Malik termed FBR’s moves as anti-business and anti-investments and argued that it would discourage foreign investors negatively.

The Committee rejected the FBR’s proposal with majority to impose 5 percent tax on fees for offshore digital services by a nonresident person for online advertising including digital advertising space, designing, creating, hoisting or maintenance of website; digital or cyber space for websites, advertising, email, online computing, blogs, online content and online data, providing any facility or service for up loading.

The FBR high-ups argued that they wanted to bring Google and other internet web providers under the tax net and this tax incidence will be charged from those outsiders who are making billions of rupees profit from Pakistan. The Senators argued that the tax burden would increase on Pakistani customers using internet websites.

The Senate Standing Committee on Finance held its meeting under Chairmanship of Senator Farooq H Naek here at the Parliament House on Friday for whole day in which the FBR tabled Income Tax amendments proposed in the Finance Bill 2018.

Dr Mussadik Malik said that after failing to bring domestic Pakistanis into tax net, the FBR moved ahead to bring foreign residents into tax net which would have negative impact on the country’s economy.

FBR Member Tax Policy Dr Mohamad Iqbal said that the tax machinery made deliberate efforts to bring foreign jurisdictions into the tax net as the country made commitments at international levels to move ahead on this subject. He said that there was need to conduct study that how the foreign companies were expatriating profits outside Pakistan. Many of them had repatriated profits more than their investments, he added.

However, Senator Mussadik Malik sternly opposed the FBR’s philosophy of taxation and termed it as anti- business and investments. Senators present in the meeting including Senator Mussadik Malik gave in writing that they reject the FBR proposal to bring digit services into tax net.

Only Senator Mohsin Aziz belonging to PTI supported the FBR move for bringing offshore digital services into tax net after getting assurances from the tax officials that the incidence of tax burden would not be shifted on shoulders of Pakistanis using internet services.

The FBR proposed gain on disposal of assets outside Pakistan in the Finance Bill. The FBR also proposed certain section in Income Tax law which will possess overriding impact on avoidance of double taxation treaties signed by Pakistan with different countries.

The FBR proposed that any gain from the disposal or alienation outside Pakistan of an asset located in Pakistan of a non-resident company shall be Pakistan-source.

For bringing controlled foreign company into tax net, the FBR proposed that there shall be included in the taxable income of a resident person for a tax year an income attributable to controlled foreign company as for the purpose of this section, controlled foreign company means a non-resident company, if more than fifty percent of the capital or voting rights of the non-resident company are held, directly or indirectly, by one or more persons resident in Pakistan or more than forty percent of the capital or voting rights of the nonresident company are held, directly or indirectly, by a single resident person in Pakistan.