The Government of Pakistan has introduced a 5% withholding tax on remittances send by Pakistanis to foreign countries in order to meet education-related finances. The tax was introduced in the Foreign Bill 2015.
The structure of these remittances will be very simple and would apply to every education-related expense, which includes:
- Tuition fees
- Boarding and lodging expense
- Payment for distant learning to any institute in a foreign country
- Any expense that can be attributed to foreign education
All financial institutions (banks, foreign exchange companies and others) and people sending/transferring foreign currency abroad will have to collect advance tax from remitters. This tax will be adjustable against the income of the person transferring the money.
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The State Bank of Pakistan issued a notification last month for easing the procedure of sending remittances abroad for education and health sector.
Under the re-examined regulations, banks are granted permission to remit foreign exchange to educational institutions, on favour of the students who want to study abroad, of up to $70,000 per student per calendar, or equivalent of that as per the criteria. Furthermore, banks can also dispense foreign exchange in cash equivalent of $5,000 to the student for initial living expenses.
In the health sector, banks are allowed to accept transfer of remittances to hospitals of up to $50,000 or equivalent in other foreign currencies for medical treatment of Pakistanis based on the endorsement of pertinent medical specialists or hospitals in Pakistan.
Tax adept recommended that the Government must consider amendments in Section 111(4) of Income Tax Ordinance for identifying the person sending remittances in Pakistan. They further added that mitigation given by the SBP may be exploited as black money generated in the system may be whitened at five percent advance tax.
