The income from royalty is chargeable to tax under the head “Income from other sources.” However, in case of non-residents receiving Pakistan source royalty tax is separately imposed at the rate specified in Division IV of Part I of the First Schedule which is 15 percent of the gross amount of royalty. In the case of resident persons, income from royalty is made part of taxable income and taxed at the rates provided in Division I or II of Part I of the First Schedule. Prior to the Finance Act, 2019, there was no withholding tax on payment of royalty to resident persons. A new section 1538 has been introduced through the Finance Act, 2019 which requires every person paying royalty to a resident person to deduct tax at the rate of 15 percent of the gross amount payable. The tax deductible shall be adjustable against the income of the recipient of royalty, the FBR added.
Prior to the Finance Act, 2019, tax deductible under sub-section (1 A) of section 152 on payment to a non-resident on execution of contracts mentioned in clauses (a), (b) & (c) was final tax if the non-resident opted for the final tax regime. Through the Finance Act, 2019, tax deductible under sub-section (1A) has been made minimum tax. Similarly, tax deductible under sub-section (1AA) of section 152 on payment to a non-resident for insurance premium or re-insurance premium was final tax. The same has now been made minimum tax, the FBR circular added.