Expansion of Taxation Scope for Non-Residents Earning Income in Pakistan via Digital Presence under Amended Finance Bill 2024
The amended Finance Bill 2024 has significantly expanded the taxation scope for non-residents earning income in Pakistan through digital means or presence. This amendment affects tech companies, dual nationals who are tax residents of other countries but receive income in Pakistan (such as rental income), and others with business connections in Pakistan. The new measures aim to ensure these entities and individuals are taxed appropriately.
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Under the proposed amendments, new sub-Sections 3A and 3B have been added to Section 101 of the Income Tax Ordinance, 2001. As per the existing Section 101(3), the business income of a non-resident person is considered Pakistan-source income if it is directly or indirectly attributable to any business connection in Pakistan.
The amended Bill introduces a more comprehensive definition of “business connection” by incorporating the concept of “significant economic presence in Pakistan.” This is defined as follows:
- Transactions involving any goods, services, or property between a non-resident and any person in Pakistan, including the provision of downloadable data or software, if the aggregate payments from such transactions during the tax year exceed a prescribed amount.
- Systematic and continuous solicitation of business activities or engagement with a prescribed number of users in Pakistan through digital means, regardless of whether:
- The agreement for such transactions or activities is signed in Pakistan.
- The non-resident has a residence or place of business in Pakistan.
- The non-resident renders services in Pakistan.
Only the income attributable to these specified transactions or activities will be considered as arising from a business connection in Pakistan.
This amendment aims to broaden the taxation scope for non-residents earning income through digital means in Pakistan. However, its implementation will depend on the prescription of specific amounts and user numbers, which have not yet been determined. Additionally, the prescribing authority remains unclear.
