In a bid to increase foreign exchange reserves and address loopholes hindering progress in this regard, the federal government has announced its decision to raise the Withholding Tax (WHT) on international credit card transactions and offshore digital services.
As part of the fiscal year budget 2023-24, the government has proposed increasing the WHT on international credit card transactions from 1 percent to 5 percent. This move is aimed at discouraging foreign currency outflow through banking channels and credit/debit cards. The intention is to encourage the general public to utilize documented banking channels, which are typically more secure, for their genuine foreign exchange needs while simultaneously mitigating loopholes that impede forex growth.
Additionally, the government has proposed increasing the fee for offshore digital services from 10 percent to 15 percent under section 152(1C) of the relevant Ordinance. This measure seeks to further regulate and streamline the taxation of digital services provided by offshore entities, ensuring a fair and equitable contribution to the local tax base.
Finance Minister Ishaq Dar, in his budget address today, highlighted the importance of increasing foreign exchange reserves and removing obstacles that hinder progress in this area. The government’s decision to raise the WHT on international credit card transactions and offshore digital services aligns with this objective, aiming to bolster reserves and promote the use of secure and documented banking channels for foreign exchange transactions.
These proposed changes are intended to create a more robust financial ecosystem while discouraging unauthorized outflows of foreign currency. By increasing the WHT and fee for offshore digital services, the government seeks to strike a balance between facilitating legitimate foreign exchange needs and ensuring a fair contribution from relevant transactions.
It is important to note that these proposals will undergo further scrutiny and review before they can be implemented. The government’s aim is to foster a healthy economic environment and strengthen the country’s financial position, ultimately supporting sustainable growth and development.