ISLAMABAD: The Federal Board of Revenue (FBR) has officially notified the income tax rates applicable to shipping and air transport services operated by non-resident entities.
These rates, established under the Income Tax Ordinance, 2001, which was updated until June 30, 2024, outline the tax obligations for foreign operators conducting business within Pakistan’s borders.
The income generated by non-resident persons through shipping and air transport is governed under Section 7 of the Ordinance. This section specifies the circumstances under which tax is imposed and details the applicable rates for different types of transport services.
According to the FBR, the tax structure is designed to cover all income generated by foreign operators from the carriage of passengers, livestock, mail, or goods, regardless of whether the income is received within Pakistan or internationally. The provisions under Section 7 of the Income Tax Ordinance are as follows:
1. Scope of Taxation:
The FBR mandates that a tax shall be imposed on every non-resident person engaged in the business of operating ships or aircraft, whether as owners or charterers. The tax applies to two primary categories of income:
The gross amount received or receivable for the carriage of passengers, livestock, mail, or goods that are embarked within Pakistan, regardless of where the payment is received.
o The gross amount received or receivable within Pakistan for the carriage of passengers, livestock, mail, or goods that are embarked outside Pakistan.
2. Tax Computation:
The income tax on non-resident operators is calculated by applying the relevant rate to the gross amounts described above. The rates, as specified by the FBR, vary based on the type of transport service:
o Shipping Income: Non-resident operators involved in shipping are subject to an income tax rate of 8% on the gross amount received or receivable for their services.
o Air Transport Income: For air transport operators, the income tax rate is set at 3% of the gross amount received or receivable.
These tax rates are outlined in Division V of Part I of the First Schedule of the Income Tax Ordinance, providing a clear framework for the taxation of foreign shipping and air transport operators.
The FBR’s decision to implement these specific rates reflects an effort to streamline the taxation process for foreign entities operating in Pakistan. By establishing clear guidelines and rates, the FBR aims to ensure that non-resident operators contribute their fair share of taxes on income generated from activities within Pakistan. This move is also intended to create a level playing field for local and foreign operators, ensuring that all businesses involved in the transport of goods and passengers adhere to the same tax obligations.
The announcement of these tax rates is expected to impact the financial planning of foreign shipping and air transport companies operating in Pakistan. As these companies adjust to the new tax regime, they will need to factor in these rates when calculating their operating costs and pricing strategies for services offered in the country.
The FBR’s initiative to clarify and enforce these tax rates highlights the government’s ongoing efforts to enhance revenue collection from foreign entities while maintaining a fair and transparent tax system. This measure is likely to be closely monitored by stakeholders in the shipping and air transport industries as they navigate the implications of these new tax obligations.
