TAXABILITY OF EXPORT OF IT SERVICES AND IT ENABLED SERVICES

Before March 2021, export of IT services and IT enabled services were exempt from tax with the condition that eighty per cent (80%) of the export proceeds is brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channels.

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On 22nd March 2021, the Government of Pakistan had issued Tax laws (Second Amendment) Ordinance, 2021 in which tax exemption was withdrawn from export of IT services and IT enabled services and introduced 100% tax credits on export of IT services and IT enabled services subject to the fulfilment of some conditions.

The above amendment is also part of the current Finance Act 2021-22 and 100% tax credits are available on export of IT services and IT enabled services subject to the following conditions:

a)?????return has been filed ;?

b)?????withholding tax statements has been filed, where the person is a withholding agent.

?c)?????sales tax returns have been filed (if the person is required to file Sales Tax Return under any of the Federal or Provincial sales tax laws); and

d)????eighty per cent (80%) of the export proceeds is brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channels.

If a person is not eligible for 100% tax credits due to any reason then 1% tax under Section 154A shall be deducted from the amount received against the export of IT services and IT enabled services by banks. Additional tax will also be applicable on the basis of profitability of the business.

Following are the definitions of IT Services & IT Enabled Services as per Income Tax Ordinance, 2001:

Information Technology (IT) services include software development, software maintenance, system integration, web design, web development, web hosting and network design; and

IT enabled services include inbound or outbound call centres, medical transcription, remote monitoring, graphics design, accounting services, Human Resource (HR) services, telemedicine centers, data entry operations, cloud computing services, data storage services, locally produced television programs and insurance claims processing.