KARACHI: The State Bank of Pakistan (SBP) has announced that amendments have been made to the Income Tax Ordinance 2001 in an attempt to simplify the tax regime for the non-resident companies investing in debt instruments and government securities.
“These amendments will deepen our capital markets, support availability of long-term rupee financing sources, support competition in the local currency debt market and diversify the source of funding for the government,” the central bank said in a press release issued on Thursday.
The existing foreign exchange framework allows non-residents to invest in debt instruments and government securities through the Special Convertible Rupee Account (SCRA) maintained with banks in Pakistan.
However, according to the central bank, the tax structure for the non-residents investing in debt securities was historically complex. Different rates applicable for withholding tax on profit on debt and capital gains tax, penal transaction charges for non-filers, a complex tax filing process and uncertainty about tax applicability were the key impediments to foreign investment in the local debt market, particularly in long-term debt instruments.
In this context, the recent amendments to tax laws simplified Pakistan’s tax regime for investment in the local debt market, the SBP said.
The changes to the Income Tax Ordinance 2001 have simplified the tax regime for the non-resident companies having no permanent establishment in Pakistan and investing through the SCRA in debt instruments and government securities, including treasury bills and Pakistan Investment Bonds.
According to the amendments, the capital gains tax shall be subject to withholding at the rate of 10% and shall constitute final discharge of tax liability. There will be no deduction of 0.6% banking transaction tax under Section 236P on transactions in SCRA and no advance tax payment will be required under Section 147 on capital gains.
The key provision in the ordinance is to simplify the tax structure and process for international investors,” SBP said.
Published in The Express Tribune, January 3rd, 2020.
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