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ARTICLE 19
REMUNERATION AND PENSIONS IN RESPECT
OF GOVERNMENT SERVICE
(1) (a) Remuneration, other than a pension, paid by a Contracting
State or a political sub-division or a local authority thereof to an individual in respect
of services rendered to that State or sub-division or authority shall be taxable only in
that State.
(b) However, such remuneration shall be taxable only in the other Contracting State if the
services are rendered in that other State and the individual is a resident of that, State
who:
(i) is a national of that State; or
(ii) did not become a resident of that State solely for the purpose of rendering the
services.
(2) (a) Any pension paid by, or out of funds created by a Contracting State or a political
sub-division or a local authority thereof to an individual in respect of services rendered
to that State or sub-division or authority shall be taxable only in that, State.
(b) However, such pension shall be taxable only in the other Contracting State if the
individual is a resident of, and a national of, that other State.
(3) The provisions of Articles 15, 16 and 18 shall apply to remuneration and pensions in
respect of services rendered in connection with a business carried on by a Contracting
State or a political sub-division or a local authority thereof.
98. Scope
This Article deals with remuneration and pensions in respect of Government service.
Paragraph (1) applies to remuneration; paragraph (2) to pension; and paragraph (3) to
exception to both. The exclusive right to levy tax has been given to the payer State. An
exception to the exclusive right is found in sub-paragraph (b) of the respective
paragraphs (1) and (2).
99. Payment of remuneration by the State - Right 0f that State to tax
The exclusivity of the right to tax remuneration paid by the State or its political
sub-division or local authority could be inferred from the words 'shall be taxable only in
that State' found in paragraph (1)(a). The remuneration should be the one which is paid to
an individual, and for services rendered to the State or sub-division or the authority.
The expression 'remuneration' has been examined in detail in para 88.3. The place of
rendering service is not relevant for this Article.
The principle of giving the exclusive taxing right has now been internationally accepted,
as it accords with the conception of international courtesy and with the provisions of the
Vienna Convention, as Diplomatic and Consular relations.
There is reciprocity about exempting income from tax earned by the employee of a foreign
State in the host country. The Pakistani Income Tax Ordinance, 1979 contains a provision for exclusion of income in case of an
individual who is not a citizen of Pakistan, remuneration received by him as an employee
of the Government of a foreign State during his stay in Pakistan in connection with his
job in Pakistan and on meeting certain conditions. Another provision
relates to the remuneration received by an individual who is
not a citizen of Pakistan as an official, by whatever name called, of any embassy, high
commission, legation, commission, consulate of the trade representation of a foreign
State, or as a member of the staff of am of these officials, for service in such capacity.
The exemption is granted provided the corresponding officials of the Government of
Pakistan enjoy similar exemption in the country concerned and also that such members of
the staff are subjects of country represented and are not engaged in any business or
profession or employment in Pakistan otherwise as members of such staff.
This paragraph does not insist upon the individual being the national or resident of the
payer State. The satisfaction of the condition of his rendering service to the payer State
is sufficient for the operation of its exclusive right to levy tax.
If, however, the recipient is an individual resident of the State in which services are
rendered, and who has not become resident of that State for purpose of rendering services
or having so become or is otherwise resident but is the national of that State, the right
to levy tax on such remuneration has been given to that State. That remuneration alone
which has been mentioned in (a) of paragraph (1) would fall within the exclusive right of
the State by virtue of clause (b). The word 'such' qualifying ‘remuneration’
connotes remuneration which has been mentioned earlier
that is, the remuneration other than a pension paid by a Contracting State or its
political sub-division or local authority to an. individual for services rendered to that
State or sub-division or authority.
100. Pension in respect of Government service
While paragraph (1) deals with remuneration, paragraph (2) deals with pension paid by
the Contracting State or its sub-division or local authority, or out of funds created by
it, in respect of services rendered to that State. It is in pari materia with paragraph
(1). As in respect of remuneration, in respect of pension also the right to levy tax is
given to the payer State, but in case the recipient is the resident of and also a national
of the other State, the right is given to that State.
100.1. Remuneration and pension are incidents of service rendered
- Employment under a Government of a person is a matter of status and there is a
passive employment link between the pensioner and the Government though that link is an
active link of employer-employee prior to his retirement. The past employment is in
continuation of the relationship of employer and employee, which existed prior to the
retirement of the pensioner. Pension is closely akin to wages in that it consists of
payment provided by an employer, is paid in consideration of past
services.
There is thus basically no difference between remuneration referred to in paragraph (2),
both are incidents of services rendered to the State or its sub-division or local
authority.
100.2. Remuneration for services rendered in connection with
business - Paragraphs (1) and (2) do not apply if the remunerations and pensions are
paid in respect of services rendered in connection with a business carried on by State or
its political sub-division or local authorities. If the nature of services is such as to
qualify the remuneration as salary and wages, or as fee to a director or as pension as if
in respect of private employment, rules contained in the respective Articles 15, 16 and 18
apply. However, services rendered by artistes and the athletes even if they relate to the
business carried on by the State or its sub-division or local authority would continue to
be governed by paragraphs (1) and (2), 'because reference to Article 17 has been made
conspicuously absent.
