Banks Start Deducting Up to 3% Tax on Foreign Transactions via Debit/Credit Cards

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Banking customers are now embracing the burden of a new tax as commercial banks have started deducting advance tax of up to 3 percent on foreign transactions through debit and credit cards.

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The Finance Act for Fiscal Year 2018-19 passed a new advance tax levy on individuals remitting amounts abroad through credit, debit or prepaid cards.

In this regard, a new section (236Y) was inserted into Income Tax Ordinance 2001 through Finance Bill 2018, which bounds banks to collect one percent advance tax from income tax return filers and three percent from non-filers who transfer the money abroad.

Accordingly, banks are required to collect advance tax at the time of transfer of any sum remitted outside Pakistan on behalf of any individual who has completed a credit, debit or prepaid card transaction with a foreign resident.

There are nearly 21 million debit cards and 1.4 million credit cards issued by different banks to their users in Pakistan.

Tax experts said the additional tax was imposed not only to generate revenue but to monitor the foreign transactions to different countries and to discourage flight of capital through banking channels especially in the scenario when foreign exchange reserves are depleting. On the other hand, this tax will increase the extra burden on the customers already paying high banking charges by the banks.

It is pertinent to mention here that banks do charge up to 5 percent additional charges on the transactional value on the utility of debit card and credit cards.

In the last couple of years, the utility of these cards has increased for making transactions to different countries as many of the banks introduced Titanium Debit/ Credit Cards to their customers, who are frequent travelers, with increased the transactional range.

Besides, the number of users of these cards has risen in recent years for making direct purchase and sale of goods from e-commerce stores. This tax is likely to hurt them as well.

On the flip side, people may use cash preferably Dollars in different countries instead of using the debit and credit cards to save their hard earned money.

Originally Published on ProPakistani.com

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