All Non-resident Pakistanis out there must have encountered one question in their mind, that why we should file our income tax return in Pakistan as we are not there in Pakistan so it should not be obligatory on us to file return.
Despite of above, some if not all of us faced a situation where your banker deducts withholding tax all the transactions for withdrawal whether it’s in cash or through cheques.
First of all, the answer to ever pondering question that ‘whether a non-resident is asked to become filer’ is Yes.
Tax is on Income earned in Pakistan irrespective of Physical stay of earner
Yes non-residents are not physically present in Pakistan, but in order to give you a basic idea on how tax structure in any Country works I am more than interested to brief few things to understand here as follows
Tax in any country is applicable /charged / collected on INCOME earned by any person, so it’s not necessary that a person is present in Pakistan or not i.e. resident or non-resident.
In view of above, if any income is earned from Pakistan [we call it Pakistan Source Income] then the earner of that income is liable to pay tax applicable / charged / collected on that income and declare such income in his/her Income tax return.
What if there is No Pakistan Source Income
What if a person is not earning any Pakistan source income still he/she is required to file Income Tax return? The answer is YES. Almost all non-residents Pakistanis remit their foreign income [earned outside Pakistan] to their relative or family in Pakistan for which bank they maintain Bank accounts.
However it is very easy to understand that Government of Pakistan cannot on its own identify that the person maintaining bank accounts here in Pakistan and depositing money is not earning any Pakistan source income but remitting his foreign source income which is legal exempt from any tax. Therefore in order to get this fact recognized to the Government of Pakistan, non-residents are obliged to file their return of income showing their foreign income on which NO tax is to be paid in Pakistan but source is to be mentioned as FOREGIN. Foreign remittance may be remitted to any bank accounts maintained in Pakistan and withdrawn without any tax applicable to NON-FILER.
Buying Selling Real Estate Properties in Pakistan
Another situation is purchase of property [Investment in Real Estate] in Pakistan, many non-resident Pakistanis buy immovable properties in the shape of plots of land, Houses, shops etc. primarily with following three objectives in mind
- To Live whenever returned to Pakistan permanently.
- To Make investment and earn returns by selling at high prices.
- To rent it out so that a regular flow of income can be earned.
Except for situation in serial # 1 above, both remaining situations are expected to generate Pakistan Source income. Selling a property at high prices would generate capital gains and rent from property is without any doubt income that is generated from Pakistan.
Keeping in view of above, the Government of Pakistan has placed a nominal withholding tax at the time of purchase of immovable properties as ultimately income is expected to be generated in the hands of buyer who in our case is non-resident person.
However there are few exceptions to the above said withholding tax which is not subject here.
Buying Motor Vehicle in Pakistan
There is a withholding tax on purchase / registration of new motor vehicles and transfer of registration in case of old vehicles which is collected from all purchaser irrespective of their status i.e. residents or non-residents.
Again this agitates the question why would a non-resident pay tax on this transaction when the same have been purchased from foreign source income.
Before I answer to above question I would request to you to think of use of vehicle if you are not there to drive, or in other words why a person would buy a car / motor vehicles in his / her name when he is not there to drive the same. One may argue that the vehicle may be purchased for use by any family in Pakistan, to which my reply would be ‘Why on Non-residents name’ the car can be purchased on that family member’s name directly for which payment may be made by non-resident person from his bank accounts.
So in my humble opinion, when a non-resident buys car/ vehicle in his name there are high chances that he / she is planning to move back to Pakistan permanently, and if this is the case then there is no harm in paying advance tax on purchase transaction as the same may be adjusted against any tax that may be payable on any Pakistan source income (except for final tax regimes).
Profits on bank deposits/ certificates or other regular income deposits
Another common income of non-resident Pakistanis is income from savings bank accounts, national saving certificates, other certificate or schemes that pay regular income, this income is without any doubt a Pakistan Source income therefore taxable in the hand of earner no matter the person is present is Pakistan or not.
Please note that majority of income mentioned above are technically known as ‘profit on debts’ and received on net basis i.e. after tax deduction.
In case a non-resident is earning any profit on debt it means he is earning Pakistan source income and is obliged to file return of income and become filer.
There are many more situations of Pakistan Source Income earned by Non-residents which are required to be declared through filing income tax return, feel free to contact us in case you wish to know more about the subject.