FBR suggested to issue exempt list of persons not required to pay withholding tax

FBR suggested to issue exempt list of persons not required to pay withholding tax

KARACHI: Federal Board of Revenue (FBR) has been urged to issue a separate list of exempt list of persons who do not require to pay withholding tax as mentioned in Section 100BA and Tenth Schedule of Income Tax Ordinance, 2001.

Overseas Investors Chamber of Commerce and Industry (OICCI) in its budget proposals for fiscal year 2020/2021, stated that as per Finance Act 2019, if a withholding tax agent is satisfied that a person not appearing in Active Taxpayers List (ATL) is not required to file return, then before deducting tax he will furnish to the Commissioner a notice carrying particulars of taxpayer along with reason on the basis of which it is considered that the person is not required to file a return.

These rules are not practical for implementation on a withholding agent and the entire exercise should be between customer/accountholder/vendor and tax authorities.

The bank branches staff are not conversant with the income tax law to determine who is required to file tax return and who is not, and this will create dispute between customer and bank branches.

The OICCI suggested to delete the rule or alternatively, if FBR is satisfied that a person is not required to file return of income, his CNIC/Name should be included in an Exempt Taxpayer List (Similar to ATL) which should be issued periodically.

The OICCI also highlighted tax rate for banking sector. It said that the banking sector tax rates are not aligned with the general corporate tax rates.

Furthermore, through Finance Supplementary (Second Amendment) Bill 2019, Super Tax at 4 percent is made applicable on banks from tax year 2018 to tax year 2021.

The OICCI recommended:

i. Corporate tax rates for the banking sector should be aligned with other sectors.

ii. Super Tax relief, as granted to other industries, should be given to banking sector as well.

The OICCI also pointed out that through Circular No.1/2-STB/2019 dated 26th July 2019, FBR has clarified that withholding tax under section 151 shall be deducted on the basis of cumulative profit paid in a tax year. The circular is in contradiction with the Act, which requires that withholding tax shall be deducted on payment basis.

Therefore it is recommended that

i. The circular should be withdrawn, to avoid litigation between banks and department.

ii. There should be a uniform withholding tax rate of 15% for all payments of profit on debt.

The OICCI said that the Clause (81A) of Part IV to the Second Schedule was inserted vide the Finance (Second Amendment) Act 2019 to exclude the reporting requirements under section 165 of ITO 2001 with respect to withholding tax under section 151 (Profit on Debt) and 231A (Cash Withdrawal) since both the withholding sections are required to be reported under section 165A.

The clause was abolished vide Finance Act 2019, resulting in duplication of reporting i.e. WHT under section 151 and 231A has to be reported, with a threshold, under section 165A on monthly basis and again under section 165 on bi-annual basis, but without any threshold i.e., WHT of even Rs. 1 has to be be reported under section 165A.

It is recommended that

i. Clause (81A) of Part IV to the Second Schedule should be restored to avoid duplication of reporting and handling of voluminous data for immaterial WHT transactions. Not clear?

ii. Alternatively, reporting requirement of section 165A for both these sections (151 and 231A) should be deleted to avoid double reporting.