ISLAMABAD: The Federal Board of Revenue (FBR) is learnt to have proposed to keep the rate of withholding tax on investment of retired persons (pensioners) in National Saving Schemes at one percent as the full and final rate.
Sources told Business Recorder here on Saturday that the proposal has been approved at the Board level. Tax authorities have principally agreed to impose one percent withholding tax on investment of retired persons in National Saving Schemes as full and final discharge of tax liability. However, it is merely a proposal of the FBR which requires approval of the Ministry of Finance and other competent forums. The proposal has been chalked out in the light of FBR’s in-house exercise to generate additional revenue in the second half (January-December) 2012-2013.
Official added that the Board-in-Council of the FBR formally approved the proposal for enhancing withholding tax rates under Income Tax Ordinance 2001, as revenue generation measures during the remaining period of 2012-2013.
It is interesting taxation proposal where tax officials have principally agreed to impose tax on the lifetime savings of retired persons (pensioners) invested in the NSS.
A Lahore-based tax lawyer Waheed Shahzad Butt said that the FBR’s proposal might create unnecessary burden of tax on senior citizens on the basis of applicable provisions of the Income Tax Ordinance, 2001 and terms and conditions prescribed by the Central Directorate of National Saving for pensioners.
At present, the resultant income tax liability for these categories of taxpayers against National Saving Schemes comes to zero-percent.
The tax expert further explained that under Table-I of Division-I of Part-I of First Schedule to the Income Tax Ordinance, the effective rate of tax is 0 percent where taxable income does not exceed Rs400,000. The minimum investment limit for pensions is Rs10,000 whereas the maximum limit is Rs3,000,000 with applicable profit rate of 12.72 percent with effect from January this year.
The resultant profit figure for maximum limit of investment of Rs3,000,000 comes to Rs381,600 only which is far less than the basic limit liable to tax. Proposal to fix the tax at 1 percent negated the basic exemption limit, the expert said.
According to the tax expert, other benefits and reductions in tax liability are also available to pensioners such as Clause 6 of Part III of Second Schedule to the Income Tax Ordinance 2001 and Clause 1A of Part III of Second Schedule to the Ordinance, which says where the taxable income other than income on which the deduction of tax is final, in a tax year, of a taxpayer aged 60 years or more on the first day of that tax year does not exceed one million rupees, his tax liability on such income shall be reduced by 50 percent.
To facilitate pensioners, Clause 36A of Part IV of Second Schedule to the Income Tax Ordinance was specifically inducted in the Ordinance which says the provisions of clause (a) of sub-section (1) of Section 151 shall not apply in respect of any amount paid as yield or profit on investment in Bahbood Savings Certificate or Pensioner’s Benefit Account, resultantly there is no tax deduction against the profit paid in these accounts.
Instead of providing relief and comfort to the senior citizens, the FBR proposal is negating the slogan of taxpayer facilitation, Waheed said.