Budget 2024-25: Govt to put tax on dual nationals and tech companies

Under the modified Finance Bill 2024, the government has broadened the scope of taxation for non-residents who generate income in Pakistan by digital methods or presence.

This will also apply to IT businesses and dual nationals who live abroad and pay taxes there yet earn money in Pakistan (from rentals, etc.).

Additionally, foreign people of that country will pay taxes in one of the two countries if Pakistan and that country sign a double taxation agreement. They will be held accountable for any business presence.

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.

A non-resident person’s business income is considered Pakistan source income, or money that is deemed to originate in Pakistan, as per Section 101(3) of the 2001 Ordinance, to the extent that it can be directly or indirectly linked to, among other things, any business tie in Pakistan.

By incorporating “significant economic presence in Pakistan” into the concept of business connection in Pakistan, the Amended Bill proposes to define business connection through an inclusive definition.

Additionally, the following definition of “significant economic presence” has been proposed in the Amended Bill:

(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 the 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.

The purpose of this proposed amendment is to broaden the taxation base to include non-residents who generate money in Pakistan through their digital presence or means. This new sub-section, however, won’t take effect until the amounts and user counts in the previously mentioned clauses are specified. It went on to say that it is also unclear who the prescribing authority is.