Written by Faisal Shahnawaz in Taxation Section 101 of the Income Tax Ordinance defines when salary, business, dividends, royalties, property income and other earnings are treated as Pakistan-source income. ISLAMABAD: Taxpayers can determine whether income is treated as Pakistan-source or foreign-source income during Tax Year 2027 under Section 101 of the Income Tax Ordinance, 2001. The Federal Board of Revenue (FBR) has published the Income Tax Ordinance, 2001, amended up to June 30, 2026, for the current tax framework. FBR’s official website lists the June 30, 2026 version of the ordinance. Tax Year 2027 covers the 12-month period ending June 30, 2027, under the normal tax-year system. Section 101 sets out the geographical basis for determining whether different categories of income arise from sources in Pakistan. Salary Income Salary is treated as Pakistan-source income to the extent that it is received for employment exercised in Pakistan, regardless of where the salary is paid. Salary is also Pakistan-source income when it is paid by, or on behalf of, the Federal Government, a Provincial Government or a Local Government in Pakistan, regardless of where the employment is exercised. Business Income of Resident Persons Business income derived by a resident person is Pakistan-source income to the extent that it arises from a business carried on in Pakistan. This provision establishes the geographical connection between a resident taxpayer’s business activity and Pakistan for source-of-income purposes. Business Income of Non-Residents For a non-resident person, business income is treated as Pakistan-source income to the extent that it is directly or indirectly attributable to a permanent establishment in Pakistan. The provision also covers income attributable to: • Sales in Pakistan of goods or merchandise of the same or similar kind as those sold by the non-resident through its permanent establishment in Pakistan. • Other business activities carried on in Pakistan that are of the same or similar kind to activities conducted by the non-resident through its permanent establishment. • A business connection in Pakistan. • Certain imports forming part of an overall…