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Tax procedure for non-resident companies clarified

ISLAMABAD (September 20 2004): The Central Board of Revenue (CBR) has clarified tax deduction procedure for the non-resident companies/persons under Income Tax Ordinance 2001.

Sources told Business Recorder here on Sunday that the CBR has issued a clarification to the Governor State Bank of Pakistan (SBP) explaining tax deduction mechanism under the section 153 and section 159 of the Income Tax Ordinance 2001.

Tax authorities have informed the bank that the payments to the non-resident company are liable to withholding tax. The State Bank of Pakistan, being the payer of the contract amounts is obliged to deduct the withholding tax under the relevant provisions of law.

The CBR said that the payment under a contract constitute presumptive income where tax deducted from those payments is final tax under sub-rule 7 of Section 153 of the Income Tax Ordinance 2001.

However, in case of a non-resident recipient/taxpayer, the provision of sub-Section (7) of Section 153 is attracted only if the said person opts for presumptive tax regime. Here, presumptive tax regime refers to clause (41) of Part IV of the Second Schedule of the Income Tax Ordinance 2001.

Consequently, the non-resident would be liable to tax on net income basis and tax deducted at source would be adjustable. Where the tax liability is considered to be less than prescribed rate of tax deduction, a lower rate certificate can be obtained from the concerned Commissioner of Income Tax (CIT) as provided in section 159 of the Income Tax Ordinance 2001.

Under Section 159, the Commissioner has the authority to issue an exemption or 'lower rate certificate' after receiving written application of the taxpayer as per conditions laid down conditions.

SBP has been informed by the CBR that in case a non-resident taxpayer is opting to be assessed on net income basis, he could approach the concerned Commissioner of Income Tax for obtaining the requisite certificate, the CBR added.

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