Govt Mulls Amending Laws on NRPs Changing Tax Residency Status

In a move aimed at curbing tax residency manipulation, the federal government of Pakistan is considering amending the laws pertaining to non-resident Pakistanis in the upcoming budget for the fiscal year 2023-2024. The proposed changes would primarily affect the Capital Value Tax and tax deemed on income under Section 7E of the Income Tax Ordinance, 2001, which currently applies to individual residents of Pakistan.

According to sources, it has come to light that some taxpayers have been exploiting the existing regulations by altering their tax residency status through extended stays in foreign countries. As a result, it is suggested that appropriate tax modifications be implemented for non-resident Pakistanis, starting from the tax year 2023-24.

The proposed amendment, as outlined in Section 82 of the Income Tax Ordinance, states that an individual will be considered a resident of Pakistan if they spend 183 days or more within the country during a tax year. Additionally, individuals who are employees of the federal or provincial government and are posted abroad in a tax year, while also being citizens of Pakistan and not present in any other country for more than 180 days during the same tax year, are regarded as residents of Pakistan.

Under the proposed amendment, once an individual becomes a non-resident, their assets will be deemed disposed of in the year in which they acquire non-resident status. Consequently, the individual will be liable to pay taxes on the capital gains generated from the deemed disposal. These capital gains will be calculated as the difference between the fair value of the assets at the end of the year in which the person becomes a non-resident and the original cost of acquiring those assets.

The suggested tax changes for non-resident Pakistanis primarily target Section 75 of the Income Tax Ordinance, which deals with the disposal and acquisition of assets. If implemented, these amendments would provide the government with a means to address the issue of taxpayers manipulating their tax residency status and ensure a fair and equitable tax system for all individuals in Pakistan.

It is expected that further details regarding the proposed amendments will be revealed when the federal budget for the fiscal year 2023-2024 is officially announced.
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