LAHORE: The Federal Board of Revenue (FBR) has announced a remarkable surge in its tax collection from foreign payments made using debit and credit cards, recording an almost five-fold increase during the tax year 2024. This significant boost underscores the growing effectiveness of recent enforcement measures aimed at improving documentation and broadening the national tax base.
According to official data released by the FBR, advance tax collection on foreign payments skyrocketed by an impressive 490%, reaching Rs17.43 billion in tax year 2024. This is a substantial leap from the Rs2.96 billion collected in the previous tax year, reflecting the FBR’s focused efforts to curb tax evasion and ensure compliance through automated banking transactions.
How Tax on Foreign Payments is Collected
The FBR collects advance tax on all foreign payments made via debit cards, credit cards, and prepaid cards under Section 236Y of the Income Tax Ordinance, 2001. This provision legally mandates every banking company to collect tax at the point of transferring funds outside Pakistan for purchases or payments involving international merchants and platforms.
Section 236Y explicitly states:
Every banking company is required to collect advance tax when a credit card, debit card, or prepaid card transaction is completed with a foreign entity.
The collected tax is adjustable against the final tax liability of the individual, meaning it’s not an additional tax but an advance payment towards their total tax obligation.
Currently, the tax rate under Section 236Y stands at 5% of the total amount remitted abroad for individuals who are listed on the Active Taxpayers List (ATL). This differentiated rate is designed to incentivize taxpayers to remain compliant, allowing them to benefit from a lower deduction rate on their international financial transactions.
Implications and Future Outlook
FBR officials view this sharp increase in collections from foreign payments as a strong indicator of the expanding volume of digital transactions and improved enforcement mechanisms at the banking level. Payments made for online shopping, subscriptions, travel bookings, and various other international services have significantly contributed to this burgeoning revenue stream.
The FBR has stated its plans to further enhance monitoring and data integration with banks. The goal is to streamline tax deduction on all foreign payments, ensuring that every such transaction is appropriately recorded and taxed under the prevailing laws. This initiative highlights the FBR’s unwavering commitment to strengthening the tax culture, fostering greater transparency in foreign financial outflows, and ultimately bolstering national revenue.
