Web Desk
The Pakistani federal government is considering introducing amendments to laws concerning tax residency changes for non-resident Pakistanis in the upcoming budget for the next year.
According to sources, the current application of Capital Value Tax and tax on deemed income under section 7E of the Income Tax Ordinance, 2001 is limited to individuals who are residents of Pakistan.
Under section 82 of the Ordinance, an individual is considered a resident of Pakistan if they spend 183 days or more in the country during a tax year, if they are a federal or provincial government employee posted abroad during the tax year and remain a Pakistani citizen while not staying in any other country for more than 180 days, or if they are not a resident of any other country.
It has been observed that taxpayers are changing their tax residency status by residing in another country for more than six months.
To address this issue, it is recommended that suitable amendments be introduced, applicable from Tax Year 2023, stating that assets owned by individuals who become non-residents will be deemed disposed of in the year of becoming non-resident.
The deemed disposal would require payment of tax on capital gains, calculated as the difference between the fair value of assets (whether local or foreign) at the year-end when the individual becomes a non-resident, and the original cost of those assets.
To implement this, appropriate amendments would be required in Section 75 of the Income Tax Ordinance, which deals with the disposal and acquisition of assets.
The proposed amendments aim to address the issue of taxpayers changing their tax residency status and ensure fair taxation for non-resident Pakistanis. These changes would have implications for the calculation of capital gains tax and the treatment of assets for individuals transitioning to non-resident status.
