Govt to Tax Dual Nationals, Tech Companies for Income Generated in Pakistan

The government has expanded the scope of taxation for those non-residents who earn income in Pakistan through digital means/presence under the amended Finance Bill 2024.

Tech companies, dual nationals who are tax residents of other countries but get income in Pakistan (rental, etc.) will be taxed through this as well.

Also, if Pakistan signs a double taxation deal with some country, then the foreign nationals belonging to that country will pay tax in one of the two countries. Any business presence will make them liable.

Tola & Tola/Tola Associates explained that the amended Bill has proposed to add new sub-Sections 3A and 3B in Section 101 of the 2001 Ordinance.

As per Section 101(3) of the 2001 Ordinance, the business income of a non-resident person shall be Pakistan source income, i.e. said to arise in Pakistan, to the extent it is directly or indirectly attributable to, inter-alia, any business connection in Pakistan.

The Amended Bill has proposed to define business connection through an inclusive definition by including “significant economic presence in Pakistan” into the definition of business connection in Pakistan.

The Amended Bill has further proposed to define “significant economic presence” as follows:

(3B) significant economic presence in Pakistan shall mean:

1. transaction in respect of any goods, services, or property carried out by a nonresident with any person in Pakistan including provision of download of data or software in Pakistan, if the aggregate of payments arising from such transaction or transactions during the tax year exceeds such amount as may be prescribed;
2. systematic and continuous soliciting of business activities or engaging in interaction through digital means with such number of users in Pakistan as may be prescribed, irrespective of whether or not—
   • the agreement for such transactions or activities is signed in Pakistan;
   • the non-resident has a residence or place of business in Pakistan; or
   • the non-resident renders services in Pakistan:

Provided that only so much of income as is attributable to the transactions or activities referred to in clause (a) or clause (b) shall be deemed to accrue or arise from a business connection in Pakistan.

This proposed amendment seeks to enlarge the scope of taxation with respect to those non-residents who earn income in Pakistan through digital means/presence. However, this new sub-section shall be effective once the amounts and number of users in the aforestated clauses have been prescribed. Further, it is also not clear as to who is the prescribing authority, it added.