ISLAMABAD: Foreign investors have urged the Federal Board of Revenue (FBR) to streamline tax exemption certificate procedures and clarify the application of Rule 19H of the Income Tax Rules, citing delays in registering cross-border share acquisitions with the State Bank of Pakistan (SBP).
According to stakeholders, the certification requirements introduced following amendments to Section 37 of the Income Tax Ordinance have created uncertainty for transactions involving Pakistani assets, particularly share transfers between non-residents.
Under the existing framework, a non-resident purchasing shares in a Pakistani company from another non-resident may be required to withhold tax. Where the seller qualifies for an exemption or reduced tax rate under domestic law or a tax treaty, a certificate must be obtained from the Commissioner Inland Revenue.
However, investors have reported prolonged delays in obtaining these certificates, while some tax authorities have reportedly classified transactions between non-residents under Section 101A of the Ordinance, resulting in certificates being withheld in certain cases.
The delays have prevented some foreign investors from completing SBP registration of shareholdings despite having finalised the underlying acquisitions.
Stakeholders said the problem has intensified as SBP registration procedures increasingly require evidence of compliance with Rule 19H, leaving investors dependent on FBR approvals to complete registration formalities.
Investors have also sought clarification that Rule 19H should not apply retrospectively to share transfers completed before its introduction, particularly where only SBP registration remains pending.
They called for a time-bound certification process and clear guidelines covering historical transactions and cross-border share transfers between non-residents.
Stakeholders warned that continued administrative delays could discourage foreign investment and create further uncertainty over shareholder rights and investment registration in Pakistan.
