PBC urges Dar to ask FBR to go easy on super tax
Pakistan Business Council (PBC) has approached Finance Minister Ishaq Dar to stop the Federal Board of Revenue (FBR) from recovery proceedings of Super Tax against non-resident companies on dividend income from their investments in Pakistan. Sources told Business Recorder here on Tuesday that the PBC has urged the Finance Minister to intervene and direct the FBR to issue a necessary clarification for withdrawal of the action in the presence of treaties for avoidance of double taxation signed between Pakistan and different countries.
When contacted, sources said that the FBR is examining the said issue of Super Tax on dividend income of non-residents. The issue has to be seen under section 107 (agreements for the avoidance of double taxation and prevention of fiscal evasion) of the Income Tax Ordinance 2001 and treaty to treaty signed between two countries.
It has to be seen whether or not the avoidance of double taxation treaty of a specific country prevails over the domestic tax laws. It again depends on the country to country which have signed the said agreements. Thus, it depends on treaty to treaty and country to country situation of taxation under avoidance of double taxation agreements, they added.
According to the PBC, attention is drawn towards a recent issue, on which PBC members have raised serious concerns. The field formations of FBR have started recovery process against non-residents on dividend income from their investments in Pakistan. It is important to note that the principals of a majority of PBC members file returns in Pakistan and also pay taxes due on their dividend income. In most cases taxes on these incomes are governed by Treaties for Avoidance of Double Taxation, which have been signed between their respective countries and Pakistan. The Finance Minister would appreciate that the treaties are perpetual in nature and categorically include super tax in their scope. For quick reference, it is reproduced below Article 2 Taxes covered, of the treaty between the United Kingdom and Pakistan:
(1) The taxes which are the subject of this convention are;
b. In the Islamic Republic of Pakistan;
i. the income tax
ii the super tax
iii the surcharge
(hereinafter referred to as “Pakistan Tax”), it added.
The above clearly shows the intention of the legislature. The actions taken by the field formations of FBR are as per PBC understanding unlawful and will likely give rise to litigation in addition to having a negative impact on the overall economic outlook and investor confidence, PBC said.
It is requested to intervene and direct the FBR to issue the necessary clarification and withdraw actions taken, the PBC added.