The government has broadened the taxation scope for non-residents earning income in Pakistan through digital means or presence under the revised Finance Bill 2024.
According to Tola & Tola/Tola Associates, the amended bill introduces new sub-sections 3A and 3B into Section 101 of the 2001 Ordinance. This amendment aims to clarify that business income of non-residents in Pakistan, including income from rental and similar sources, will be subject to taxation.
The bill proposes defining “business connection” to include “significant economic presence in Pakistan.” This includes transactions involving goods, services, or property with any entity in Pakistan, where payments exceed a prescribed threshold during the tax year. Additionally, it encompasses continuous digital engagement with a specified number of users in Pakistan, regardless of where agreements are executed or whether the non-resident has a physical presence in Pakistan.
The definition of “significant economic presence” and the specific thresholds will be prescribed later. The amendment will only apply once these details are finalized, although the authority responsible for setting these parameters remains unclear.
This amendment expands the tax base to cover non-residents earning income in Pakistan through digital activities, ensuring compliance with evolving global taxation standards.
