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LAHORE: Residents of the erstwhile Federally Administered Tribal Areas (FATA) have failed to avail exemption from deduction of withholding tax by National Savings Centre (NSC) on the plea that the Income Tax Ordinance was not extended to the tribal areas prior to the 25th amendment to the Constitution, said sources.

According to the NSC sources, the taxpayers were of the stance that the deduction of withholding tax relating to the certificates obtained by them from the Centre was illegal and constitutionally invalid.

However, the tax department maintained that the Central Directorate of National Savings offers various saving and investment schemes to the public. The Directorate is controlled by the federal government and it has established centres throughout the country, including the then areas. The certificates are issued by the saving centres and a fixed rate of return is payable to the account holder upon its maturity.

The department further stressed that the function of the Centres is confined to the issuance of certificates, informing the public regarding the schemes launched by the Directorate, payment of income/profit to the holders of the certificates and to facilitate the account holders.

The Centres do not invest the funds received from the account holders nor are they engaged in any business or activity which may have the effect of raising or generating income. The funds collected by the Centres are invested by the Directorate.

The concerned authorities said the national saving schemes operated and managed by the Directorate fall within the ambit of the expression “government-security” and the income is deemed to have arisen or accrued in Pakistan for the purposes of the Ordinance of 2001, which provides that where a person pays yield on an account, deposit or a certificate under the National Savings Scheme or Post Office Savings Account, it becomes a mandatory statutory obligation of the payers of the profit to deduct tax at the rate specified in Part III of the First Schedule from the gross amount of the yield or the profit paid to the recipient.

They said it is a statutory duty of the Directorate is to comply with the express requirement. The Centre, therefore, acts only to facilitate the public in the Tribal Areas to avail the benefits of the various national saving schemes offered by the Directorate. The income of the Directorate does not arise nor accrues in the Tribal Areas.

Copyright Business Recorder, 2024

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