Home »IT and Computers » Pakistan » Export of IT services: Tax exemption grossly misused : AGP
The Auditor General of Pakistan (AGP) has endorsed an investigative report of the Federal Board of Revenue's Directorate General of Intelligence and Investigation Inland Revenue exposing massive misuse of the income tax exemption on the export of information technology (IT) services by Association of Persons (AoPs).

According to the AGP report for 2018-19, the examination of the study report conducted by the Directorate General of Intelligence and Investigation Inland Revenue (IR) revealed that the exemption was grossly misused as statutory and regulatory provisions for the export of IT services and IT-enabled services were not complied with.

According to clause 133 of the 2nd Schedule of the Income Tax Ordinance 2001, income from exports of computer software or IT services or IT-enabled services up to the period ending 2019 shall be exempt from tax provided that 80 percent of the export proceeds is brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channel. Moreover, Export Policy Order 2009 provides that exports from Pakistan shall be made under the foreign exchange rules, regulations and procedures notified by the State Bank of Pakistan (SBP) from time to time upon submission of such documents as may be prescribed.

However, the section 111 of the Income Tax Ordinance 2001 provides for taxation of concealed income which is not offered for tax.

Moreover, the domestic income generated from IT services rendered/ provided within Pakistan was also concealed/ suppressed.

For example, five association of persons (AoPs) and six individuals belonging to a single family were engaged in internet marketing (online sales) and wrongly claimed exemption by declaring such services as export of software to evade the taxes to the tune of Rs 732.38 million

during tax years 2009 to 2013.

The family has financial stakes in property business at Dubai. Neither the same has been declared in their wealth statements nor has income generated therefrom been declared.

Since the FBR's department initiated legal action against them, the taxpayers used to file returns with nil income, whereas their business in Faisalabad is still operative.

The AGP recommended that there is a need of investigative audit to probe the factual sources of income of all AoPs and individuals.

The assessment deemed to have been made needs to be revisited as exemption claimed under clause 133 of the 2nd Schedule has not been covered under the law.

The assets created outside Pakistan, especially in UK and Dubai, need to be investigated.

Copyright Business Recorder, 2019


the author

Sohail Sarfraz is the Chief Reporter in Islamabad. He has been with the paper for over a decade and his contributions to reports on tax related matters as well as Securities and Exchange Commission of Pakistan are recognized and appreciated not only by his readers but also by his colleagues in other media outlets.

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