ISLAMABAD: The Federal Board of Revenue (FBR) has been urged to make amendments in the Section III (4) of ITO 2001 and amendment of Pakistan Economic Reform Act (PERA 1992) on accounts that provisions under these laws are often misused by the business community.
Taking advantage of provisions of these laws some businessmen remit undeclared income through unofficial channels, which is then brought into Pakistan in foreign exchange through banking channels. Moreover, no taxes are paid on such (undeclared) income it can be laundered into white money at a small cost of 3% to 4%. The amendment in these provisions will help curb the practice of whitening of money under the umbrella of PERA.
According to a package of recommendations in the budgetary proposals received by FBR from Pakistan Banks Association, the FBR made positive step by progressively reducing income tax rates for business income of corporate sector from 35% to 34% for tax year 2014 which was now down to 30% for tax year 2018. In fact, the lower tax rate on capital gains and dividend income of banks has been raised to a uniform rate of 35% from tax year 2015.
As per documents available with FBR, banking sector is one of the largest contributors to the revenue collection as in the year ended December 31, 2016, it paid total taxes of over Rs140 billion and collected and paid to the FBR over Rs134 billion as withholding tax. Therefore, the total contribution to the revenue collection was over Rs274 billion. This has enabled the banking industry to continue playing an integral role in the economic development of the country and supporting major initiatives of the government, the FBR and the SBP.
FBR has been further recommended to reduce tax rates for banks to 30% for tax year 2018, in line with the corporate sector and the tax rate be made uniform and equitable. As for Advance tax on banking transactions other than cash, under Section 236P, vulnerable groups such as widows, pensioners, retirees, students, etc., receive very low compensation / income that falls below the taxable threshold and they are not liable to pay tax. But withholding tax is deducted on their savings whenever they make withdrawals, which is unfair as they cannot claim credit for the deducted amount.
Such tax is also likely to adversely affect the National Financial Inclusion Strategy and lead to financial exclusion. Therefore, it has been suggested that Section 236P should be removed or exemption should be provided to the vulnerable groups and the threshold of transfer/ transactions increased to Rs100, 000.
FBR has been also suggested to grant tax exemption for “Not for Profit” organizations on profit on debt from scheduled banks should also be applicable on profit on debt from MFBs to encourage mobilization of deposits for the Mirco Finance Banks (MFBs). Similarly, all provident funds/gratuity may also be allowed to deposit funds with MFBs, as scheduled banks and MFBs are both regulated by SBP.
