Bank levy: exemption for certain categories suggested

Pakistan Banks' Association (PBA) has proposed budget makers to exempt students, widows, pensioners, farmers and retired persons from payment of 0.4 percent advance tax on banking transactions of non-filers in budget (2018-19). The budget proposals of the PBA for 2018-19 revealed that the section 236P of the Income Tax Ordinance 2001 deals with the Advance tax on banking transactions other than through cash.
Advance tax at the rate of 0.6 percent (currently 0.4 percent) has been imposed on all non-filers including those which are not liable to pay tax eg where their income falls below taxable threshold, tax is deducted at source on all of their taxable income or they are otherwise exempt from tax. This section 236P should ideally be removed. If that is not possible, exemption should be provided to Students, Widows, Pensioners, Farmers, retirees etc.
At the same time, the threshold of transfer/transactions should be increased to Rs 100,000, PBA proposed. The rationale for proposal is that the widows and pensioners receive very low compensation/income that also fall below taxable threshold. And in case they are able to save something, tax is deducted on its withdrawal that is unfair as they cannot claim credit for the amount deducted being not liable to file return.
Similar is the case with the students who do not have any source of income that is liable to tax and accounts are being maintained by them solely for payment of fee and to meet their educational and boarding expenses. Due to increase in Fee from educational institutions they have to make payments exceeding the taxable threshold that is subjected to tax. Pertinent to mention here that Educational Fee is already subjected to tax @5 percent under section (u/s) 236I if the fee exceeds Rs 200,000, therefore, charging tax on students account again would be double taxation and students cannot claim the credit of amount deducted as they are not liable to file Income Tax Return.
Agriculture income of a person is exempt from tax u/s 41 of the Ordinance; however, under section 236P, tax is collected on accounts maintained by farmers, which is unjust as they are not able to claim refund of this tax deduction. This will also negatively impact the National Financial Inclusion strategy of Pakistan, PBA
PBA proposed that the insertion of explanation in section 165 & addition of a new section 165A requires a general disclosure of customer information to FBR, including giving online access to the FBR to banks' own databases.
The respective laws, including Banking Companies Ordinance 1962, The Protection of Economic Reforms Act, 1991, etc, containing banking secrecy provisions should be amended.
Accordingly, the original Section 165 should be restored and Section 165A be removed as the existence of Section 176 already allows the FBR to obtain information in the case of suspected tax evasion by any particular person.
The rationale for proposal is that the Income Tax Law already vests power to the officials of the FBR to call for any information related to the tax payers under section 176 of the Ordinance. The banks receive, on a very frequent basis, notices under section 176 stating the name of the persons and their CNIC for provision of bank statements of the customer for past several years (in certain cases dating back to 2008).
All the banks are providing specific information including complete bank statements to the requesting tax officials. Copies of such statements at times run into thousands of pages, PBA said. Section 165A will discourage financial inclusion/main stream banking which is high priority for the Government and SBP and it creates all kinds of risks for the customers of the bank. Moreover this will seriously hamper the FBR's drive towards documentation and promote informal and parallel sector of the economy by doing undocumented/cash transactions in land and property.
These amendments are in conflict with existing provisions of the Banking Companies Ordinance, 1962 and Economic Reforms Act 1992 relating to customer confidentiality. A number of banks are already under litigation on the subject, PBA added.