10/03/21

ASIA: Over Rs60bn untaxed foreign income detected in Pakistan.

As published on dawn.com, Wednesday 10 March, 2021.

ISLAMABAD: In what appears to be a new dimension in taxation, the country’s top tax machinery has detected Rs60.308 billion foreign untaxed income disbursements to 75,615 individuals through digital tra­n­sactions in less than two-and-a-half years, Dawn has learned from official sources.

The cases have been det­ected in an investigation by the Offshore Commissi­one­rate of Large Taxpayers Off­ice, Islamabad, into the mon­ey received by Pakista­nis on account of provision of various freelancer consultancy services and sale of goods to various foreign clients.

Official documents seen by Dawn show that foreign clients paid money to Pakis­tani individuals through a US-based company, M/s Payoneer Inc., engaged in cross-border payments in 200 countries and supporting more than 150 currencies, including the Pakistani rupee. The money was finally transferred to their Pakistani bank accounts. The digital transactions were carried out in tax years 2019, 2020 and half of the tax year 2021.

The investigation reveals that a huge amount of Rs60.308bn was disbursed to 75,615 beneficiaries as their foreign-source income in terms of provisions of Section 101, read with Section 11(5), of the Income Tax Ordinance 2001.

The overall revenue imp­act of the unearthed digital transactions is estimated to be over Rs10bn. This will not only result in broadening the tax base but also improve the overall tax-to-GDP ratio of the country by adding genuine taxpayers having regular foreign income.

Out of this, 45,012 beneficiaries do not exist on tax roll — have no National Tax Number (NTM) — and 30,603 are registered on tax roll. However, only 17,985 of the registered persons are return filers, while 12,618 have not filed any returns with the tax department.

Further details show that Payoneer Inc. has no physical presence in Pakistan. Foreign clients make payments in the Payoneer account of the individual Pakistani in the United States and the person withdraws the money from Payoneer account maintained by Mobilink Micro Finance Bank Limited (MMBL) either through Jazz Wallet or from their account maintained with any bank in Pakistan.

The investigation shows that besides MMBL, 27 Pakistani banks were also used by Pakistani clients for withdrawal of foreign source income remitted through Payoneer.

When contacted, Offshore Taxation Commissioner Zulfiqar Ahmad told Dawn that it was a big achievement for the Federal Board of Revenue (FBR) as taxation of untaxed foreign income would not only contribute to the national exchequer in terms of revenue and new taxpayers but disbursement of non-resident company would also be taxed in Pakistan.

He said the exercise, carried out under the order of the director general of International Taxes in Islamabad, had resulted in identifying a huge number of 45,012 persons who were liable to be registered under income tax and pay tax on the income earned through Payoneer.

About non-NTN holders, the Offshore Commissionerate has in its investigation report recommended for their compulsory registration. It has also suggested to the FBR to issue bulk notices to the individuals who are registered but do not file tax returns, as well as those filers who have not declared taxable foreign income in Pakistan.

Moreover, on the basis of significant economic presence of Payoneer in Pakistan as well as its services originated from outside the country but terminated within the territorial jurisdiction of Pakistan, it has been proposed that tax proceedings be initiated against Payoneer for its income on account of payment to Pakistani individuals under the Income Tax Ordinance 2001 and the Federal Excise Act 2005.