KARACHI: The Federal Board of Revenue (FBR) has clarified the procedure for exemption from withholding tax on payment by resident to non-resident person and a resident applying for exemption from deduction.
On a query raised by certain quarters on payment to non-resident – exemption / low rate certificate – circular No. 05 of 2013 – online application by recipient – whether recipient can apply for exemption: recipient not covered by circular N0. 05 of 2013 and Section 152 of Income Tax Ordinance, 2001, the FBR stated that the certificate issued under Section 152 to the payer is in respect of a particular payment if it is determined by the commissioner that the same is not taxable under the Income Tax Ordinance, 2001.
Circular No. 05 of 2013 provides mechanism for online application and issuance of certificate under Section 152. The said circular is for the payer / withholding agents applying to the commissioner under sub-section (5) of Section 152 regarding their intention to pay to the non-resident without deduction of tax. The commissioner is then required to decide whether tax deduction is warranted or not, within 30 days as provided in sub-section (5A) of section 152.
The FBR said that exemption certificate under Section 159 of Income Tax Ordinance, 2001, is issued to the taxpayer i.e. recipient of the payment. Hence, a non resident person whose income is exempt from Pakistan tax can directly apply and obtain exemption certificate in respect of nature/classes of income in terms of provisions of clauses (a) and (b) of sub-section (1) of section 159.
The revenue body further said that Circular No. 05 of 2013 provides mechanism for online application under section 152 by the payer/withholding agent and it is not relevant in case of non-resident person applying for exemption from tax under section 159 as a recipient of payment.
Therefore, the FBR clarified that both section 152 and 159 are independent of each other the two certificates under the said sections are meant for different persons and for different intent/purpose. A resident person intending to pay to a non-resident person without deduction of tax of the non-resident has to apply under Section 152 as per Circular No. 5 of 2013. On the other hand, a non-resident applying for exemption of its income shall apply under section 159 for which circular No. 05 is not relevant.