ISLAMABAD – The Federal Board of Revenue (FBR) has taken steps to discourage foreign exchange reserve outflows. The FBR increased the withholding tax (WHT) on payments made to non-resident individuals through debit and credit cards by a significant 400%.
This decision is based on a circular issued last week, labelled “number 2 of 2023 for explaining amendments to the Finance Act 2023.” The Finance Act 2022 initially introduced section 236Y, which imposed a 1% withholding tax rate for Active Taxpayer List (ATL) individuals and 2% for Non-ATL persons for payments to non-residents using debit/credit cards.
Since these payments significantly affect foreign exchange outflow from the country, the FBR decided to raise the withholding tax rates further. Under the Finance Act 2023, the new rates are set at 5% for ATL persons and 10% for non-ATL persons, marking a substantial increase of 400% for both categories.
The State Bank of Pakistan (SBP) estimates that monthly payments through credit or debit cards amount to approximately $70 to $100 million, totalling around $1 billion annually. To implement this measure, the Finance Bill granted the FBR the authority under Section 236Y to collect advance tax on individuals remitting amounts abroad using credit, debit, or prepaid cards.
As per the Finance Bill 2022, the proposed advance tax rate on amounts remitted abroad through credit, debit, or prepaid cards under section 236Y was set at 1% of the gross amount remitted abroad.
