SOHAIL SARFRAZ

ISLAMABAD: Banks have asked the Federal Board of Revenue (FBR) to clarify whether withholding tax under section 236P of the Income Tax Ordinance, 2001 is applicable on foreign currency accounts, instruments and Home Remittance Exchange Companies transactions.

Sources told Business Recorder Monday that Pakistan Banks Association (PBA) has asked the FBR to respond to the queries and clarifications with respect to applicability of collection of advance tax under section 236P of the Income Tax Ordinance, 2001. In FBR circular 2 of 2015, the FBR said that certain other queries by banks and other taxpayers are being received in respect of section 236P, for which a detailed circular shall be issued shortly.

It needs to be clarified if withholding tax is applicable on foreign currency account as well, how will we define threshold? Law doesn’t use the word “or Equivalent “while defining threshold amount, ie, Rs.50,000.  In case of home remittance, funds are sent by overseas Pakistanis to their families in Pakistan who in many cases are not filers and non-account holders. The payment is made to the recipient on the production of NIC Card through debit to Exchange Company Accounts. If withholding tax @ 0.60 percent is to be deducted, who will bear this withholding tax - the recipient of money or the exchange company?

It needs to be clarified what would be the treatment of tax deduction from foreign nationals. If a foreigner who is a non filer remits abroad, is 0.6 percent advance tax is applicable?

Sources said that a question has been raised saying the limit of Rs.50,000 is applicable to a single account and not to a single customer because customers maintain multiple accounts with the bank. In other words, if a customer has multiple accounts then every single account will be considered separately for the threshold of Rs.50,000 per day. For example, if Rs.50,000 is debited for issuance of PO from one account and PO of Rs.50,000 is also issued for debiting another account then no tax will be deducted from any account. Is this correct?

It needs to be clarified would tax be deducted in case of recovery of any charges, installment of loan, lease installment, markup, recovery of security deposit, retention of margin, collection of credit card dues by the banks from non-filer customers?  In case of joint accounts, if any one account holder is filer then account will be considered as filer. Is this correct?

The FBR should clarify would tax be deducted on payment through Wallet or virtual account and would tax be deducted on payment through POS machine at retail shop by credit card/debit card?

This tax is to be collected from the account which is debited for issuance of instrument or for transfer of funds to another account. No tax will be collected from the person whose account is credited as a result of transfer of fund. Is this correct?

Sources raised a query that would tax be deducted if payments/transfers made to federal/provincial/local government other than taxes?  This section clearly states that “Advance tax under this section shall not be collected in case of payment made for federal, provincial or local government taxes “means exemption restricted to taxes only?

It needs to be clarified that whether bank charges, late payment or any other penalties charged by bank shall be considered for threshold of Rs. 50,000 as defined u/s 236P. Would tax be deducted if a customer has multiple accounts in our bank and he transfers fund from his one account to his another account?  

The FBR should clarify would tax be deducted on the sale of PIBs, Treasury Bills, prize bonds and products of Directorate of National Savings by debiting the accounts? Moreover, would tax be deducted when an account is debited for the payment of utility bills?

At maturity of instruments like TDRs, etc. customers are issued Term Deposit Receipts (TDRs) for different maturity period. Sometimes these TDRs are renewed and in such cases TDR is matured and simultaneously fresh TDRs are issued resulting in debit and credit of customer account. Will this debit transaction on the renewal of TDR attract 0.60 percent withholding tax in case of non-filers? There is a similar treatment in case of Treasurer Call Accounts (T-Call Accounts) where funds may be moved from the customer’s Current Account to his T-Call account and later back again to his Current Account resulting in debit/credit on a daily basis but no actual transfer takes place. Employers maintain accounts for the purpose of bulk salary transfers to the employees. If the employer is categorized as a non-filer, will the bulk salary transfer/transaction be subject to withholding tax?

The tax on profit on debt for non-filers has been increased from 15 percent to 17.5 percent in case the profit amount exceeds the threshold of Rs. 500,000. Is this tax from non-filers to be deducted on cumulative profit during the fiscal year or on a per transaction basis? What happens where a customer is maintaining multiple deposits with the bank?

What would be the treatment of tax deduction in case of payment of Import LCs. LCs are opened by banks against their customer requests and payments are made on due dates either by debit to customer account or banks’ internal GLs which are later adjusted  by debit to customer account. Is tax at 0.6 percent to be deducted on such payments?

If in case a customer is a non-filer and carries out a transaction of PKR 49,000 other than cash, and an additional bank charge is Rs 1,200 is levied on the transaction thus the total debit from the customer account exceeds the threshold of PKR 50,000. In such a case the transaction itself does not exceed the threshold; however, if the bank charges are cumulated then the transaction exceeds the threshold. In such circumstances shall the transaction be subject to withholding tax under the requirements? Furthermore, if bank charges are deducted from an account, such that the value of the charges exceeds the threshold, will such a debit transaction from the customer’s account be subject to withholding?

Certain entities are exempted from taxes and are issued exemption certificates by the FBR; such as trusts, nonprofit organisations, registered pension funds etc. Are such entities required to file tax returns and if they do not file tax returns shall they be classified as non-filers? If a bank customer has a valid tax exemption certificate; however, does not appear on the active tax payers list, should the bank deduct the required amount under the section?

Will the transaction involving repayment of a loan amount either installment or full settlement be subject to withholding tax?

A bank customer has the option to transfer funds from one credit card facility or an OD/RF facility maintained at a bank through BTF (balance transfer facility) to another credit card facility or an OD/RF facility maintained at a different bank. Will such BTF transaction be subject to the withholding tax?

If the taxable income of a person is below the minimum threshold for return filing requirement then will that person also be treated as non-filer? Will the recovery of loan installments/markup/other charges by the Banks from its customers also covered by Section 236P?

If a cheque is received for Rs.55,000 for clearing and at the time of making transaction the accountholder’s balance is Rs.55,000 in this scenario the bank cannot recover 0.6 percent withholding tax and the bank cannot also return the cheque due to un-sufficient  amount. What is the bank supposed to do?

Customer Account is debited by bank for adjustment of funded facility or reversal of adjustment, whether subject tax is applicable? If a person’s name is not appearing in ATL list due to the fact that as per law he is not required to file income tax return. In this case, is bank required to withhold 0.6 percent advance tax on transactions undertaken by such customers?

If a customer has a foreign currency account with Bank for investing in Pakistan and the customer do investment transactions through this account. Then 0.6 percent advance tax will be applicable on such transactions?

It needs to be confirmed if section 236P applies to branchless banking transactions. The implementation on branchless banking will adversely affect the financial inclusion strategy worked out with the SBP and World Bank. The new tax on the payments and transfers impacts the business and agents in such a way that it makes the whole proposition unviable for the branchless banking stakeholders including the Financial Institutions and the agent networks. The branchless banking agents as a consequence will stop funding their accounts and servicing the customers who are benefiting from branchless banking services.

If this is to be implemented on branchless banking, please confirm if it is to be applied on the Branchless Banking agent account who is not a customer of the bank, i.e. he is not holding an account with the bank for his personal funds and usage. Rather an agent acts on behalf of the bank to provide financial services. It is prudent that the branchless banking agent is considered as the extension of the bank’s teller/till where multiple customers’ financial transactions are serviced. The transactions executed from agents account are not for the agent rather each transaction is conducted for servicing an individual customer whose CNIC is captured. The limit on Domestic Remittance transaction is Rs.15,000 per month for every CNIC. This means that the agent cannot perform more than Rs. 15,000 per month for one individual. In case of Utility Bills Payments the amount paid will be equal to the actual amount of the bill, which is again not for the agent himself rather for the walk-in customer, as in the case of a walk-in customer at branch.

Will the tax apply on the cash management transaction of the agent i.e. transfer-in (from core banking account to the Wallet of the agent). This is a transaction for cash management of the funds for the agent at his counter. It is just similar to how the branch funds its ‘cash in hand’ to serve the walk in customers.

Should tax be deducted in case of Transfer from saving account to current/RF account for deduction of loan installments for the client etc? For clearing transactions where the account balance is insufficient to allow deduction of applicable WHT under section 236-P, a uniform revised set of instructions be issued by FBR after considering legal and operational issues involved therein for the banks, PBA added.