KARACHI: Pakistan Tax Bar Association (PTBA) has demanded the Federal Board of Revenue (FBR) of bringing Bahbood Certificate/Pensioners Benefit Account under normal tax regime for providing tax relief to senior citizens.
PTBA in a letter sent to FBR pointed out incorrect interpretation issued by secretary income tax vide Circular No. 06 of 2017 dated September 29, 2017.
The PTBA said that the FBR interpretation is as follow:
- As per law, persons deriving income from yield or profit on investment in Bahbood Certificates/Pensioners Benefit Account are chargeable to tax under Section of the Income Tax Ordinance, 2001.
- As per Clause [36A] of the Part IV of the Second Schedule, amount paid as yield or profit on such accounts is not subject to withholding tax under Section 151. Therefore, the amount chargeable to tax under Section 7B as per rates specified in Division IIIA of Part I of the First Schedule is to be paid at the time of filing of return of income.
iii. However, due Clause [6] of Part IV of the Second Schedule, the tax payable on any amount paid as yield or profit on Investment in Bahbood Saving Certificates or Pensioners’ Benefit Accounts shall not exceed 10 percent of such profit.
The PTBA said that on perusal of above, it is transpired that the secretary inadvertently misinterpreted and overlooked the important provisions of law; while clarifying that the yield on profit on investment in Bahbood Certificates/Pensioners Benefit Account is chargeable under Section 7B and rate of tax would be 10 percent of such yield or profit irrespective of quantum of income.
The tax bar recalled that prior to insertion of Clause [36A] of Part IV of the Second Schedule to the Ordinance vide the Finance Act, 2004; the aforesaid income was liable to withholding tax at the rate of 10 percent, which was full and tax liability against such income. However, in order to relieve the senior citizens, pensioners and widows from inconvenience of obtaining refunds of tax so deducted on income below the threshold limit as provided in Division I of Part I of the First Schedule to the Ordinance; the aforesaid clause was inserted. It was also clarified that the tax, if any, payable thereon to be paid as per normal tax rates.
In this regard Circular 12 of 2004 issued by the FBR which stated: “Income arising from Bahbood Saving Certificates and Pensioner’s Benefit Accounts shall be required to be declared in the return of the total income by the concerned persons. The tax, if any, payable thereon would be paid as per normal tax rates along with the return of total income.”
The PTBA said that since the yield or profit is liable to taxed as ‘income from other sources’ under Section 39(1)(c) of the Ordinance, the reduced rate in this regard has been provided under clause (6) of Part IV of Second Schedule to the Ordinance, which reads as under:
“(6) The tax payable under Clause (c) of Sub Section (1) of Section 39, in respect of any amount paid as yield or profit on investment in Bahbood Saving Certificate or Pensioner’s Benefit Account shall not exceed 10 percent of such profit.”
The PTBA further said that on perusal of above and combined reading of Section 151(1)(a), Clause (6) and Clause (36A) of Part IV of the Second Schedule, it is transpired that:
- Yield of profit on debt arising on investment in Bahbood Saving Certificates or Pensioner’s Benefit Account shall be taxed as per normal tax rates under Section 39(1)(c) instead of Section 7B of the Ordinance, as wrongly presumed by the FBR secretary.
- The tax payable under Clause (c) of Sub Section (1) of Section 39, in respect of any amount paid as yield or profit on investment in Bahbood Saving Certificate of Pensioner’s Benefit Account shall not exceed 10 percent of such profit; and
iii. No withholding of tax shall be made on the yield or profit on debt on investment in Bahbood Saving Certificates or Pensioner’s Account.
Considering the above, the PTBA urged the FBR to withdraw the clarification issued through Circular No. 06 and confirm the correct position as narrated above.
The PTBA further said that PRAL had also modified the return for the tax year 2017 in accordance with the incorrect interpretation. Therefore, the FBR should direct PRAL to do the needful in accordance with law as explained above.
