TOKYO, June 15: Japan has reached basic agreement with Pakistan to revise a nearly 50-year-old tax treaty to promote investment and build closer economic ties, the ministry of finance said on Friday.

Under the current treaty, when a Japanese company has a branch in Pakistan, Pakistani taxes are levied on all the income made within the country even if it is made through a direct business with its headquarters in Japan.

The same applies to Pakistani companies in Japan.

But the revised treaty will impose taxes only on income made through operations of branches in the other country.

“I hope this will lead to closer economic ties between the two countries,” Japanese Finance Minister Koji Omi told a news conference.

Other revisions include rationalising investment income tax levels for dividend, interest income and other fees.

Japan has been stepping up efforts to revise tax treaties in recent years. Revising a treaty with the United States in 2004 was a breakthrough.

Since then, Japan has revised tax treaties with India, Britain and signed similar agreements with the Philippines and France. It is now in talks for similar deals with Australia, Kuwait, the United Arab Emirates (UAE), and the Netherlands.

Japan and Pakistan plan to sign the agreement around the end of this year or early 2008 and on approval by their parliaments. The Japanese finance ministry hopes that the new treaty could take effect by the end of 2008.—Reuters