PBA concerned over 0.6pc WHT on small borrowers

recorder report

ISLAMABAD: Pakistan Banks Association (PBA) has expressed serious concern over 0.6 percent withholding tax on cash withdrawals (loans) by poor clients of microfinance banks, putting undue burden on borrowers not able to withdraw full loan proceeds. In this regard, PBA has written a letter to the FBR here Friday on the microfinance banks’ observations on the Finance Act 2015.

PBA microfinance subcommittee was of the view that the increase in withholding tax on cash withdrawal in excess of Rs 50,000 by non-filers from 0.5 percent to 0.6 percent is further expected to hurt poor clients of Microfinance Banks (MFBs).

Such withdrawals from accounts of borrowers are invariably loan proceeds, and applying a withholding tax deduction on withdrawal amount results in the borrowers not being able to withdraw the full loan proceeds that they are entitled to, and which could have been used for their economic empowerment and income generation. It is important to note here that the majority of these clients fall below the taxable limit of Rs 400,000 and are not required to pay income tax under the provision of the Income Tax Ordinance 2000. Deducting 0.6 percent from their withdrawals from the microfinance banks puts an unfair burden on the client and impairs the social benefit and uplift that can arise from full utilization of loan. Consequently, this tax hinders the ability of the MFBs to fulfil the social mission envisioned under the Ordinance.

PBA said that the microfinance banks, as members of PBA, have expressed reservations on certain aspects of the Finance Act 2015, which in their view is likely to be disadvantageous to the microfinance sector and detrimental to the abilities of Microfinance Banks (MFBs) to fulfil the objectives of the Microfinance Institutions Ordinance, 2001( “the Ordinance” ).

Firstly, the introduction of advance income tax at the rate of 0.6 percent, has a negative impact on the microfinance sector and to the clients of the Microfinance banks, which is endorsed by the PBA subcommittee on Microfinance. Similar issues will be faced by users of Branchless banking.

In view of the said representation of MFBs members, Chairman, PBA subcommittee on Microfinance banks, along with some other CEOs of MFBs have requested the FBR to convene a meeting to discuss the issue in detail, PBA added.