Federal Board of Revenue (FBR) has been proposed for imposing digital tax at 30% in the proposed budget 2019/2020.
Chartered Accountants have suggested the imposition of digital tax from next tax year as OECD had started thinking of appropriately taxing the digitized economy.
Institute of Chartered Accountants of Pakistan (ICAP) in its budget proposals recommended the FBR that till the time proper mechanism was devised, a digital tax can be initially introduced at the rate of 30 percent (on non-resident companies having no establishment in Pakistan) only on their income from advertisements from Pakistan.
It further added that policies should be developed in line with best practices from other countries, which should later be implemented with special consideration for companies setting up businesses in Pakistan.
International social networking and retail websites, such as Alphabet, Facebook and Apple, are earning massive revenues from corporates and consumers in Pakistan by way of:
— Advertisement on their websites,
— Sharing consumer profiles / data with the corporates in Pakistan and to corporates and governments outside Pakistan, etc.
“Despite all the revenues collected from consumers in Pakistan, these companies are not adequately taxed as they are not established within the country,” the ICAP said.
These companies are also denting Pakistan’s local tech industry by eating up majority of the local advertisements, whereas their interests are not to set up business in Pakistan.
Despite there are companies, like Ali Pay, who are now investing in Pakistan and have put their money in tech companies, like ‘Daraz’ and ‘Telenor Bank’.
These businesses should be rather incentivized by charging high tax on non-resident companies not having their stakes in Pakistan despite earing significantly.
“This will also encourage local software service providers to get registered and earn from local advertisements.”
The ICAP further suggested identifying tax leakage areas / sectors prone to easy-escape tax net
An efficient and effective collection platform is required to replace cash economy through digitization e.g. Jazz Cash or Easy Paisa or replacing this with a State Platform.
The chartered accountants recommended that banks, insurance companies and branchless banking networks should be the ones recovering the taxes.
The FBR together with firms / institutions must organize tax education campaigns (in digital, print and social media) in both Urban and Rural Areas.
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