WHT agent''s function: banks should be paid two percent collection charges

Pakistan Banks'' Association (PBA) has proposed that Finance Bill 2018 should incorporate an amendment whereby banks should be paid 2 percent collection charges on performing withholding tax agent on behalf of federal government.
It is learnt that the budget proposals of the PBA for 2018-19 has also proposed insertion of a new clause in the Income Tax Ordinance 2001 for collection charges for acting as withholding agent. Banks should be paid collection charges on performing withholding tax agent on behalf of Federal Government @ 2 percent, PBA proposed.
Giving rationale of the proposal, it said that the government has enormously widened the scope of collection/deduction of taxes through banks by making a number of amendments in tax laws through various Finance Acts eg provisions of section 231A, 231AA & 236P. The banks incur substantial cost in complying with tax collection provisions as withholding agents on behalf of government (man-hours, IT Systems development and up-gradation, infrastructure use and stationary, just to mention a few). There is no provision in tax laws regarding any collection charges for rendering these services. Under the existing law/requirement under section 165B of the Income Tax Ordinance 2001, the provision deals with the furnishing of information by financial institutions including banks.
As per section 165B of the Income Tax Ordinance 2001: Furnishing of information by financial institutions including banks.-(1) Notwithstanding anything contained in any law for the time being in force including but not limited to the Banking Companies Ordinance, 1962, the Protection of Economic Reforms Act,1992, the Foreign Exchange Regulation Act, 1947 and any regulations made under the State Bank of Pakistan Act,1956 on the subject, every financial institution shall make arrangements to provide information regarding non-resident persons to the Board in the prescribed form and manner for the purpose of automatic exchange of information under bilateral agreement or multilateral convention.
All information received under this section shall be used only for tax and related purposes and kept confidential. It is suggested that the special laws dealing with banking secrecy matters ie section 3 read with section 9 of Protection of Economic Reform Act, 1992, Section 46A/46B/54A of the State Bank Act, 1956, section 33A of the banking Companies Ordinance, 1962, State Bank of Pakistan''s regulations and section 5 & 6 of the Bankers'' Books Evidence may be amended to align the section with the aforesaid special laws.
As the Government has entered into Multilateral Agreement, the proposed amendments will enable smooth implementation of the provisions of Section.165 B by all the stakeholders, it added. Amendment made through the Finance Act 2014, in definition of term "income" under the Income Tax Ordinance, 2001 and by inserting two new sections of 5 percent tax on bonus shares. This is to be applied on the basis of the day end price on the first day of closure of books.
Company issuing bonus shares has been burdened with the obligation to collect advance tax, before issuance of bonus shares. If shareholder does not deposit tax, shares equal to 5 percent shall be transferred to CDC account in the name of Federal Board of Revenue (FBR) reconsideration inter alia for the following reasons:
While issuing bonus shares, there is no consideration payable to the shareholder by the company. It is not a cash transaction, rather it is capitalization of retained earnings of the company to enhance the capital of the company. No payment in cash is involved. Therefore, (withholding tax) WHT cannot be deducted.
Issuance of bonus share increases number of shares and market capitalization which results in enhancing of trading activity at the stock exchange as explained above. Due to levy of withholding tax on bonus shares, companies are more inclined to issue cash dividend in place of bonus shares. This would restrict the increase of capitalization and would be harmful for the growth of the stock exchange. Moreover this also leads to expatriation of funds from the country in form of cash dividend, PBA added.
Through an amendment Tax Rules 2006, additional at rate of 5 percent was imposed above the sales tax of electricity and gas unregistered person. This additional sales tax should not be charged to a bank''s branch.
The rationale for proposal is that the banks are registered person under Sale Tax/FED, however, branches are located across the country. Further, most of the branches are on rented premises where utility connections are in the name of the landlord. Accordingly, bank is treated unregistered person for these premises and additional sales tax is charged, which is unjustified, PBA added.