The Income Tax Ordinance of Pakistan defines tax structures more elaborately and section 153 Income Ordinance deals with the payments to non-residents and some other incomes. For any business person, a freelancer, or anyone who is associating with business people from another country, it is essential to develop an understanding of Section 153. This section mainly discusses withholding tax which is paid when making the payment to the FBR. In the following blog post, we will explain section 153 of the Income Tax Ordinance, its effects, and consequences on those living as well as operating companies in Pakistan.
Section 153 income tax ordinance is quite important because it defines withholding tax for some categories of payments made by individuals or entities. This section focuses on the bar which relates to payments for services, contracts, and importation of goods or provision of services. It was established by Section 153 income tax ordinance and its main purpose is to compel compliance with tax payment by deducting some cash as the tax and giving the balance to the main receiver who is usually a non-resident or foreigner.
Section 153 income tax ordinance covers many payments. Here are the major types of transactions covered:
Section 153 also provides that payment made for contracts of various natures including construction contracts, service contracts or any other work contract is subject to withholding tax. The contractor is urged to make payment to the tax authorities by a certain percentage of the payment.
This entails payments made on charges for professional services; consultancy fees; or any other service as might have been offered by a layperson or a corporation. It does not matter if it is a legal service, medical, or advisory service, withholding tax is compulsory.
Section 153 applies to payments made with respect to imported goods in Pakistan. On such payments, a withholding tax is applied to facilitate tax on international business as a way of encouraging compliance.
If payment is made to a non-resident for services or contract work, Section 153 income tax ordinance 2001 applies and withholdings tax is calculated and paid before payment is affected.
Withholding tax under Section 153 income tax ordinance are amounts based on the following tables depending on the type of payment to be made. The tax rates include variable charges and vary between citizens and foreigners. The following are the general withholding tax rates:
But it is also good to note that the rates could differ and thy here in, thus the taxpayers should always confirm with FBR on the current rates.
Section 153 of income tax act vests the duty of deduction and remitting tax in the hands of the payer. This means that any individual or company making a payment to a contractor, professional service provider, or foreign entity is required to:
For non-residents, Section 153 income tax ordinance provides the payment made at the time of services, contract, or imports is taxed at source. This tax is paid over in the course of payment hence non-residents don’t have to apply for tax filing in Pakistan. But still in this case a non-resident is allowed to claim a tax refund or reduced rate of tax under the provisions of the income tax treaty entered between Pakistan and the country where the non-resident qualifies to be taxed from and get the refund or reduced tax rate based on production of such necessary documents.
Non-residents should ensure they keep a record of the certificates of the withholding tax that they were given so that they can offset it on their income tax return while in their home country or in the Islamic Republic of Pakistan.
Here’s a simplified guide for the process:
Failure to comply with deduce (deduce meaning in urdu nateeja nikalna )can lead to significant penalties, including:
Explore: Income Tax Ordinance in Pakistan. A complete guide for Taxpayers
Section 153 income tax ordinance is very important in the context of Pakistan’s taxation regime, particularly for those units that are involved in contracts, services, or international transactions. Through advocacy for the implementation of the deduction at the source, this section ensures the realization of efficient tax collection for the government.
Every person, who deals with the payments as a businessman, a contractor, or only as a taxpayer-receiver, should consider the provisions of Section 153 to be obligatory for performing. It is advised to always find out the current tax rates, try to keep your records updated, and pay your taxes on time so as not to be charged with penalties and try to take advantage was possible tax credits or refunds.