The government is considering an amendment in the taxation laws to bring foreign brands, operating through franchise/liaison office in the country, into the tax net, officials stated on Friday. The officials mentioned, presently many famous foreign brands are available in the country through a marketing and distribution network of local dealer or agent.
The officials also mentioned that liaison offices of foreign companies are excluded from the present definition of permanent establishment (PE) and are not required to get registered with the tax authorities. Income Tax Ordinance, 2001 defines PE as branch, office, factory or workshop through which the business is wholly or partly carried out.
According to an official at the Regional Tax Office in Karachi, several cases have been unearthed in which agents or outlets maintained that they were working on behalf of foreign companies and thus were spared from taxes under the international tax treaties. He also shared that these local companies have no registration and no sales and income records available with the FBR, despite generating untaxed profits.
The FBR is going to make amendments into the PE definition, which would enable the tax authorities to tax the income generated from local sources. All incomes generated through sales of such brands are going to be taxable after reframing the law, stated an FBR official.
Due to this, the FBR has been suffering huge revenue losses under this head as several distribution companies or individuals are working as agents of foreign companies for marketing and promotion of their products.
It was also highlighted that such companies would need to get themselves registered with the tax authorities once the necessary changes get enacted. These companies would then need to file wealth statement and tax returns as per the law.
