Roshan Digital Account (RDA) is a flagship initiative of State Bank of Pakistan (SBP), in collaboration with commercial banks operating in Pakistan. These accounts provide innovative banking solutions for millions of Non Resident Pakistanis (NRPs) seeking to undertake banking, payment and investment activities in Pakistan. RDA has received USD 500 million in deposits through 87,833 accounts in first five months with USD 243 million in the last 6 weeks alone.
One of the most concern and suggestion highlighted by the NRPs was to simplify the tax regime for the facilities available under the RDA. Accordingly, the Federal Government, on recommendation of SBP, has carried out various amendments in the Income Tax Ordinance, 2001 by promulgating a new ordinance i.e. Tax Laws (Amendment) Ordinance, 2021. The purpose of this ordinance is to make the taxation regime simple, convenient and hassle-free for NRPs maintaining RDAs.
What are the new Amendments
The amendments simplify and reduce the tax compliance cost for the NRPs maintaining RDAs. Previously, the NRPs investing in Naya Pakistan Certificates (NPCs) through their RDAs were under the full and final taxation regime. However, with the cited amendments the coverage of full and final taxation regime has been extended to other facilities availed through RDA including dividends and capital gains on shares and mutual funds investments made through RDAs, and capital gains on real estate investments.
Further, the new amendments exempts NRPs to file tax returns against their income derived from investment made through RDAs under the aforementioned investment avenues. The removal of return filing requirements is a crucial step towards eliminating the previous inefficiency of enhancing / doubling of tax rate due to their absence from the FBR’s Active Taxpayer’s List (ATL). Moreover, NRPs with RDAs will not be subject to tax on cash withdrawals and bank transfers that are applicable on non-filers.
The profit on debt on RDA deposits is already tax exempt while the tax rate on profits on NPCs is 10 percent for both NRPs and resident Pakistanis having declared assets abroad. Similarly, the tax rate is 15 percent on dividends from mutual funds and companies.
The tax on capital gains on shares and mutual funds is applicable at 15 percent, similar to filers. Moreover, 1% of the value of property will be payable as tax at the time of purchase and sale. This will be the final tax liability of NRPs against capital gains on investments made through RDA.
The simplification of the taxation regime is likely to give a further boost to the Roshan Digital Account.
