Balance transfer from funds: SECP for insertion of new clause in IT Ordinance

The Securities and Exchange Commission of Pakistan (SECP) has asked the Federal Board of Revenue (FBR) to exempt from tax the withdrawal of accumulated balance from approved pension fund that represents accumulated balance transferred from approved provident fund to approved pension fund.
Sources told Business Recorder, here on Monday that the SECP has proposed insertion of new clause 23B in the Part 1, Second Schedule of the Income Tax Ordinance 2001. According to the SECP proposal, the employee contribution to provident fund is after tax payment and the provident fund income in excess of the limits prescribed under the Income Tax Ordinance is taxed. The Income Tax Rules allow withdrawal of contributed funds from provident fund to be transferred to VPS (approved pension funds). The proposal seeks that accumulated balance of provident fund transferred to approved pension fund should be separately marked by the Pension Fund Manager and any withdrawal representing this marked balance should be exempted from tax and be treated as if that is withdrawn from provident fund (ie tax-free).
Therefore, the beneficiary should be given different treatment from those who are given tax credit at the time of contribution to VPS. This amendment was earlier proposed in 2011 and was accepted by Revenue Advisory Council (RAC) but not reflected in final Finance Bill 2011.
The SECP further proposed to allow tax free transferability of funds (accumulated balance) from employer sponsored retirement schemes (gratuity and pension scheme) to VPS and vice versa by inserting clause 13A, part 1 in the Second Schedule of the Income Tax Ordinance 2001. An individual has the following retirement benefits which he can avail at the end of his employment including pension fund, provident fund and gratuity fund.
The amount drawn from these funds is tax exempt. The employee cannot withdraw earlier from these funds except on retirement. In order to give the portability facility to the employee to avail the benefits of maintaining pension account under VPS, there should be an option available to employee to transfer the amounts of the Pension Fund or Gratuity Fund recognised under the Sixth Schedule to the recognised Pension Fund under VPS rules.
To encourage a competitive market for retirement schemes giving a choice to employers and employees to join a better scheme like Pension Scheme under VPS. This amendment was earlier proposed in 2011. FBR agreed to the proposal, however, suggested to reposition the proposal instead of second schedule, SECP added.
The SECP has also proposed allowing option to employee to contribute to VPS instead of Provident Fund Account through insertion of new Sub-rule (1)(cc) to Rule 2, Part 1 in the Sixth Schedule of the Income Tax Ordinance 2001. The labour Laws require employer to maintain a Provident Fund and/or pension fund (VPS Rules) for its employees and contribute equally the same amount as contributed by the employee. The Commissioners are already allowing employees who are members of a provident fund scheme to make part or full contribution to VPS, subject to amendment in the trust deed of the provident fund. It is proposed to allow an employee to contribute either to provident fund or recognised pension fund and an equal contribution from the employer, SECP added.