TUESDAY AUGUST 23: WHT exemption on certain transactions: Banks, FIs have to mention law

ISLAMABAD: Banks and financial institutions have to specifically mention the withholding tax provision of the Income Tax Ordinance 2001 under which tax has not been deducted or exempted.
Explaining the Income Tax Circular 9 of 2011, sources told Business Recorder here on Monday that the banks being withholding agents would have to inform the tax department about the relevant provision of the law which exempts certain transactions from deduction of withholding tax.
For this purpose, the FBR has provided the list of recipients of 'Profit on debt' exempt from deduction of tax at source. The list would facilitate the banking sector to determine whether the specific transaction is exempted from deduction of withholding tax.
The FBR has also explained the rate of withholding tax and basis on which deduction of tax would be made. It included Yield (profit on debt) on an account, deposit or a certificate under the National Savings Scheme or Post Office Savings Account; Profit on debt on an account or deposit maintained with them; profit on debt on any security issued by them and any profit on debt.
As per circular, profit on debt paid to the following recipients exempt from deduction of tax at source: The Federal Government; Provincial Government; Local Government; Institutions of the Agha Khan Development Network (Pakistan) listed in Schedule 1 of the Accord and Protocol dated November 13, 1994, executed between the Government of the Islamic Republic of Pakistan and Agha Khan Development Network, Non-resident, (excluding local branches or subsidiaries or offices of foreign banks, companies, associations of persons or any other person operating in Pakistan), in respect of their profit on debt from Pak rupees denominated Government and corporate securities and redeemable capital, as defined in the Companies Ordinance, 1984, listed on a registered stock exchange, where the investments are made exclusively from foreign exchange remitted into Pakistan through a Special Convertible Rupees Account maintained with a bank in Pakistan; Special Purpose Vehicle for the purposes of securitisation; Venture Capital Company; Islamic Development Bank; National Investment (Unit) Trust; A Modaraba; A Collective Investment Scheme; An approved Pension Fund; An approved Income Payment Plan; Real Estate Investment Trust (REIT) Scheme; A Private Equity and Venture Capital Fund; A recognised Provident Fund; An approved Superannuation Fund; An approved Gratuity Fund; International Finance Corporation established under the International Finance Corporation Act, 1956; Pakistan Domestic Sukuk Company Limited; Asian Development Bank established under the Asian Development Bank Ordinance, 1971; ECO Trade and Development Bank; A person who produces a certificate from the Commissioner to the effect that their income during the tax year is exempt from tax under the Income Tax Ordinance, 2001 or any other law for the time being in force.
Profit on debt arising from the following accounts, deposits, certificates, or arrangements is exempt from deduction of tax at source: Under a loan agreement by the borrower to a Banking company or a development financial institution; Account, deposit or certificate issued under the National Savings Scheme of Post Office Savings Account which were exempt from tax under the repealed Income Tax Ordinance, 1979 and where investment was made on or before June 30, 2001; Mahana Amadni Account held under the National Savings Scheme where the monthly instalment does not exceed Rs 1,000; Bahbood Savings Certificate or Pensioner's Benefit Account issued under the National Savings; Term Finance Certificate held by a company, which has been issued on or after the first day of July, 1999; Term Finance Certificates being the instruments of redeemable capital under the Companies Ordinance, 1984 (XLVII of 1984), issued by Prime Minister's Housing Development Company (Pvt) Limited (PHDCL); Pak rupee accounts or certificates, which are created out of foreign currency account or deposit held on May 28, 1998, with a bank authorised under the Foreign Currency Scheme of State Bank of Pakistan; Defence Saving Certificate, Special Savings Certificate and Savings Account held under National Savings Scheme or Post Office Savings Account, or Term Finance Certificates, held by any resident individual, where such deposit does not exceed one hundred and fifty thousand rupees (applies to resident individual only); Monthly income Savings Account held under the National Savings Scheme, where monthly instalment in an account does not exceed one thousand rupees (applies to a resident individual only); Foreign currency account or deposit maintained by a person with authorised banks in Pakistan, in accordance with Foreign Currency Accounts Scheme introduced by the State Bank of Pakistan, by citizens of Pakistan and foreign nationals residing abroad, foreign association of persons, companies registered and operating abroad and foreign nationals residing in Pakistan; Rupee account or deposit held by a citizen of Pakistan residing abroad with a scheduled bank in Pakistan, where the deposits in the said account are made exclusively from foreign exchange remitted into the said account and interbank deposits by a banking company, the FBR added.