The Pakistani Senate Standing Committee on Finance approved three revisions suggested by the OECD for revising fiscal laws on digital economy taxation.
Dr Mohammad Iqbal, Policy Member of the Federal Board of Revenue (FBR) announced that the changes would lead Pakistani law to be compliant with OECD regulations. These amendments are to be enacted through the Finance Bill, 2018, targeting tax avoidance by big foreign entities.
The proposals allow the FBR to tax tech giants and collect its due share of taxes from the profits of multinational companies and those owned by Pakistanis overseas. After rejecting a 3% levy, Pakistan recommended a 5% tax on gross revenue of digitalized companies such as Google, Facebook and Amazon. Pakistan has signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters with OECD in September 2016, and the latest revisions are in accordance with the spirit and purpose of the OECD’s Base Erosion and Profit Shifting (BEPS) project.
Another approved legal change shows that if a resident of Pakistan directly or indirectly holds 50% or more capital or voting rights in a foreign company, the company’s income will be subject to tax in Pakistan. But the Senate rejected the proposal which would have allowed the FBR to declare any business transaction as abusive or avoidance-oriented.
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