Final Tax Regime (FTR) – Part II
Final Tax Definition
The final tax regime (FTR) is a method of taxation where the taxpayer considers the tax deducted as a full and final discharge of their tax liability.
Income from the final tax regime is not subject to any deductions, allowances, tax credits, or adjustments for losses.
Final Tax Regime (FTR) – Exports – Section 154, Division IV Part III 1st Schedule
The tax shall be deducted @1% from export proceeds in respect of direct exporters, indirect exporters, and undertakings located in the Export Processing Zone.
Indirect exporters are the persons who have a firm contract or export purchase order from a direct exporter for the manufacture of supply of goods to such exporters.
Exports also include the following and are covered under Final Tax Regime;
- Supply of goods against international tenders.
- Local sales of goods including waste materials that are manufactured for exports not less than 20% of the production.
- Export to Afghanistan and export proceed received in cash.
- Advance payment received against future exports.
Final Tax Regime (FTR) – Export of Services – Section 154A and Division IVA of Part III of 1st Schedule
On realization of foreign exchange proceeds tax shall be deducted on account of the following:
Tax @1% of proceeds on following export of services;
- Construction contracts executed outside Pakistan.
- An indenting commission agent receives a foreign commission.
- Services are rendered outside Pakistan or exported from Pakistan including technical services.
- When a resident company from a foreign enterprise earns royalty, commission, or fees in consideration for the use outside Pakistan of any patent, secret process, invention, model design, or information concerning industrial, commercial, or scientific knowledge, experience, or skill, or formula or similar property right made available or provided to such enterprise.
Tax @0.25% of proceeds on the export of computer software or IT-enabled services where the exporter is registered with and duly certified by the Pakistan Software Export Board (PSEB).
The tax-deductible shall be a final tax on the income arising from the above transactions, upon fulfillment of the following conditions:
- The return has been filed;
- Filing of withholding tax statements for the relevant tax; and
- If required, filing of sales tax returns under Federal or Provincial laws.
- For foreign taxes paid no credit shall be allowed.
The above transactions shall not fall under FTR where:
- The person opts not to be subject to final taxation. This option shall be exercised every year at the time of filing of return of income.
Final Tax Regime (FTR) on Profit on Debt: Clauses 5A, 5AA, and 5AB of Part II 2nd Schedule
Tax @10% shall be deducted from the gross amount of profit on debt (from a debt instrument, government securities, treasury bills, and Pakistan Investment Bonds). The amount of profit is paid to a non-resident person having no permanent establishment in Pakistan.
Purchaser of these instruments must be through;
- Special rupee convertible account maintained with a bank in Pakistan or
- Bank account maintained abroad or
- Non-resident rupees account (NRAR) or
- Maintains foreign currency account in banking company of Pakistan.
Tax @10% shall be deducted on the gross amount of profit on debit (from a debt instrument, issued by the federal government or its wholly owned subsidiary) to a resident who has already declared foreign assets to FBR through a foreign currency value account (FCVA) maintained with authorized banks in Pakistan.