Banks must collect advance adjustable tax

SOHAIL SARFRAZ

ISLAMABAD: Finance Act 2015 has made it mandatory for banks to collect advance adjustable tax from a non-filer at the time of sale of any instrument, including demand draft, pay order, special deposit receipt, cash deposit receipt, short-term deposit receipt, call deposit receipt, rupee travellers cheque or any other instrument.

Finance Act 2015 issued here on Tuesday explained advance tax on banking transactions other than cash under new section 236P. Under the new provision in the Income Tax Ordinance 2001, every banking company shall collect advance adjustable tax from a non-filer at the time of sale of any instrument, including demand draft, pay order, special deposit receipt, cash deposit receipt, short term deposit receipt, call deposit receipt, rupee traveller’s cheque or any other instrument of such nature.

Every banking company shall collect advance adjustable tax from a non-filer at the time of transfer of any sum through cheque or clearing, interbank or intra bank transfers through cheques, online transfer, telegraphic transfer, mail transfer, direct debit, payments through internet, payments through mobile phones, account to account funds transfer, third party account to account funds transfers, real time account to account funds transfer, real time third party account to account fund transfer, automated teller machines (ATM) transfers, or any other mode of electronic or paper based funds transfer.

The advance tax under this section shall be collected at the rate specified in Division XXI of Part IV of the First Schedule, where the sum total of payments for all transactions mentioned in sub-section (1) or subsection (2), as the case may be, exceed Rs 50,000 in a day.

Finance Act said that the advance tax under this section shall not be collected in the case of Pakistan Realtime Interbank Settlement Mechanism (PRISM) transactions or payments made for Federal, Provincial, or local Government taxes. Under new section 236Q (Payment to residents for use of machinery and equipment), Finance Act said that every prescribed person making a payment in full or in part including a payment by way of advance to a resident person for use or right to use industrial, commercial and scientific equipment shall deduct tax from the gross amount at the rate specified in Division XXIII of Part IV of the First Schedule.

Every prescribed person making a payment in full or in part including a payment by way of advance to a resident person on account of rent of machinery shall deduct tax from the gross amount at the rate specified in Division XXIII of Part IV of the First Schedule.

The tax deductible under sub-sections (1) and (2) shall be final tax on the income of such resident person.

(4) In this section “proscribed person” means a person as defined in sub-section (7) of section 153.

(5) The provisions of sub-section (1) and (2) shall not apply to agricultural machinery and machinery leased by a leasing company, an investment bank or a Modaraba or a scheduled bank or a development finance institution in respect of assets owned by the leasing company or an investment bank on a Modaraba or a scheduled bank or a development bank institution.

Finance Act specified section 236.R (collection of advance tax on educational related expenses remitted abroad). It said that there shall be collected advance tax at the rate specified in Division XXIIV of Part-IV of the First Schedule on the amount of education related expenses remitted abroad.

Banks, financial institutions of foreign exchange companies or any other person responsible for remitting foreign currency abroad shall collect advance tax from the payer of educational related expenses.

Tax collected under this section shall be adjustable against the income of the person remitting payment to education related expenses.

For the purpose of this section, education related expenses includes tuition fee, boarding and lodging expenses, any payment for distant learning to any institution or university in a foreign country and any other expenses related or attributable to foreign education, the Finance Act added.