Secretary Finance Dr Waqar Masood has said that the issue of withholding tax on banking transactions would be resolved soon. A meeting of the Senate Standing Committee on Finance was held on Monday to consider Income Tax (Second Amendment) Bill 2015 along with various other agenda items and government''s desire for early approval of bill to amend tax ordinance.
The committee has deferred consideration of bill to amend the Income Tax Ordinance 2001 till informal discussion today (Tuesday), before taking any decision about it. Tax authorities informed the committee that turnover tax for corporate service would be applicable at 2 per cent for those who present their accounts for audit and full 8 per cent rate would be applicable for those who do not present their accounts for audit. Some members of the committee, however, stated that giving relief in turnover tax to few sectors was discriminatory and hence must be given to all the sectors.
The members of the Standing Committee also expressed their serious reservation on PIA related ordinance and suggested to the Committee Chairman Saleem Mandviwalla that all the ordinances issued by the government must be revised in details by the committee. House Building Finance Corporation (HBFC) stated that it is going to prepare a scheme for widows that would cost $800 million and Auditor General of Pakistan informed the committee that audit report of ghost pensioners would be submitted after January 4. President of First Women Bank also briefed the committee on banks performance as well as issue of maintaining minimum capital requirement.
The meeting was informed that the government had imposed through finance Act, 2015 advance income tax deductible on services rendered by corporate entities at 8 percent under section 153(1)(b) of the income tax ordinance, 2001. However, later on the corporate service sector agitated over the issue of minimum tax under the section. Resultantly Federal Minister for Finance Ishaq Dar constituted a committee headed by special advisor to the Prime Minister on Revenue Haroon Akhtar to review the matter.
The government was approached by (i) freight forwarders; (ii) air cargo service providers; (iii) courier; (iv) manpower suppliers; (v) Pakistan Hotels Association; (vi) security guard services; (vii) software sector;(viii) tracker business;(ix) advertisers; (x) share registrar services; (xi) engineering services; and (xii) car rentals.
The committee called the representatives of the above sectors and held detailed discussion regarding taxation of service sector companies. The gist of the contention of the entire corporate service sector was that they operate on very low margin of profit and 8 percent minimum tax cannot be absorbed.
After detailed discussions and meetings with the corporate service sectors, the said the committee recommended two mutually exclusive options for the aggrieved corporate service sector: (1) The aggrieved corporate service sector be allowed an option to opt out of the minimum tax regime under section 153(l)(b) read with section 153(3)(b) of the income tax ordinance 2001 provided the said aggrieved corporate service sectors offer themselves for audit by an irrevocable undertaking in writing in advance by 15th November, 2015 for the tax year 2016. (2) The aggrieved corporate service sector be allowed to carry forward the tax paid under the above mentioned section of the income tax ordinance 2001 in excess of their tax liability otherwise for five years in the same manner as carry forward of the minimum tax under section 113(1)(c) of the income tax ordinance, 2001 is allowed.
However, the rate of minimum tax of 8 percent will remain intact for the corporate service sector and no exemption certificate will be issued. The above recommendations after due deliberations were incorporated in the Income Tax (Second Amendment) Ordinance, 2015.
The committee was also informed that a new section 236P was introduced in the income tax ordinance through finance act, 2015 requiring every banking company to deduct tax @0.6 percent from non-filers at the time of sale of any instrument, whether against cash or otherwise and at the time of transfer of any sum through cheque or clearing, interbank or intra bank transfer through cheques, online transfer, telegraph transfer, mail transfer, or any other mode of electronic or paper based funds transfer.
However, the said rate has been reduced from 0.6 percent to 0.3 percent from 11th July 2015 to 31st December, 2015. This provision was made inapplicable to Pakistan Real-time Inter-bank Settlement Mechanism (PRISM) transactions or transfers of tax payments.
The intention behind exclusion of PRISM transactions was to stop applicability of withholding tax on interbank settlements however; certain banks are not collecting withholding tax even if an amount is transferred from an account of customer of one bank to another account of a customer of another bank through PRISM, thereby causing loss to the national exchequer. In order to plug this revenue leakage exemption granted to PRISM transaction through amendment in sub-section (4) of section 236 of the income Tax Ordinance, 2001 has been withdrawn through the Income Tax (Second Amendment) Ordinance, 2015.
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