The Economic Co-ordination Committee (ECC) of the Cabinet has rejected a proposal of chairman Federal Board of Revenue (FBR) to include withholding tax exemption for non-filer insured agriculturists in the Finance Bill 2017 or through an ordinance, well informed sources told Business Recorder Tuesday. Finance Division, sources said, recently informed that a new section 236U has been introduced in the Income Tax Ordinance 2001 through the Finance Act, 2016 which required collection of advance income tax @ 4% by every insurance company and agents of insurance company.
The tax would be collected from non-filers at the time of collection of general insurance premium. At present, Finance Division is operating two schemes ie Crop Loan Insurance Scheme (CLIS) and Livestock Insurance Scheme (LIS). Through these schemes, the government reimburses the insurance premium of the loans obtained from the banks by the subsistence farmers. The reimbursement of claims of insurance premium to banks is made through the State Bank of Pakistan. The indemnity is payable in cases of natural calamities like flood, drought and disease.
According to sources, Finance Division further said that with the enhancement of scope of CLIS up to 25 acres of land and increase in the credit disbursement for agriculture sector by banks, the amount for reimbursement of insurance premium claims has increased significantly. The imposition of advance income tax @ 4% on insurance premium through the Finance Act, 2016 would affect both the schemes - CLIS and LIS.
"If both the schemes were not exempted from the payment of advance income tax, the government will have to allocate more funds in the budget for payment of advance income tax on behalf of subsistence farmers under both the schemes who are generally non-filers," the sources quoted Finance Ministry as arguing in its summary.
Finance Division apprised the meeting that since both the schemes - Crop Loan Insurance Scheme and livestock Insurance Scheme - are aimed at providing risk cover to mitigate losses in case of natural disasters, ensuring national food security, protecting national economic interests and development of backward/rural areas, therefore, these may be exempted from the purview of section 236U of Income Tax Ordinance, 2001 as provided in the Finance Act, 2015.
During the ensuing discussion, the chairman FBR stated that the proposed exemption may be considered either through inclusion in the Finance Bill 2017 or through introduction of an ordinance. However, the ECC of the Cabinet observed that the proposed exemption would have a great impact on national food security and that this proposed exemption is for the subsistence of low income farmers with a small cultivation area of 12.5 acres. Therefore, the ECC of the Cabinet decided to approve the proposed exemption keeping in view the national food security and disasters. After a detailed discussion, the ECC approved the summary of Finance Ministry regarding withholding tax under section 236U of the Income Tax Ordinance, 2001 for non-filer insured agriculturists.