ISLAMABAD: Pakistan is considering to impose tax on offshore digital companies, including tech giants such as Amazon, Facebook and Google in order to acquire share from earnings of these foreign entities.
As part of the 2018-19 federal budget, these taxes on foreign digital companies – making earnings through Pakistan – have been proposed before the parliament. But at the same time, all such tax proposals have been rejected by the Senate Standing Committee of Finance, terming it anti-business and anti-investments. The Senate body argued that the proposed move would impact foreign investors negatively.
In a briefing to the standing committee, member Inland Revenue Policy of the FBR, Dr. Mohammad Iqbal, said that the government wants to tax the digital advertising space along with hosting and maintenance of websites to tax the revenues of tech companies like Google and Yahoo.
This law will also affect companies doing business in user data and online marketplaces, such as Careem and Uber.
If the proposal is passed by the National Assembly, technology companies will have to pay 5% tax on money earned from user data or digital advertising in Pakistan.
“If the FBR starts taxing the big data, this could undermine Pakistan’s ability to get benefit from the digital revolution,” said Dr. Musaddiq Malik, member of the standing committee and spokesman of the prime minister.
The PM’s spokesman also came down hard on the FBR and said that Pakistan was not a tax-liberal country and its tax laws were drastic.
“It seems that the FBR has made the budget on the assumption that it can no more tax people in Pakistan and has decided to go after offshore jurisdictions,” said Dr. Malik.
The standing committee rejected the FBR’s budget proposal to tax tech giants but if it comes to the case of the financial bill the Senate doesn’t have much say in the matter as it cannot vote.
On the other hand, Dr Iqbal said that the FBR will have a right to declare a business transaction by a foreign entity fictitious if it deems fit that the transaction does not have economic value and is only aimed at avoiding taxes,
According to Dr. Iqbal, there are companies doing business in Pakistan that have foreign ownership just to avoid taxes. He said that under the new clause, the FBR will even tax the passive income of such companies.
In a statement, Senator Mohsin Aziz said that “The budgetary proposals suggest that the FBR has concerns regarding foreign friends that are investing in Pakistan,” indirectly referring to China.
The investments that fall under the China-Pakistan Economic Corridor are exempted from all types of income tax, sales tax, customs duty and regulatory duty.
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