Withholding tax to be restored to 0.6pc from Jan 1: sources

KARACHI: The withholding tax on non-cash banking transactions by non-filers of tax returns will be restored to 0.6 percent from the present reduced rate of 0.3 percent with effect from January 1, 2016, sources said on Wednesday.

The government, however, is going to announce a package for businessmen in the coming days to appease them, said well-placed sources at the Federal Board of Revenue (FBR).

"From January onwards, the reduced rate of withholding tax at 0.3 percent on such banking transactions will not be available and there will be a normal rate of 0.6 percent," said an official, requesting anonymity.

A section 236P was inserted into the Income Tax Ordinance, 2001, in the budget 2015/16, under which non-filers of income tax returns were required to pay 0.6 percent withholding tax while making non-cash transactions above Rs50,000 through financial institutions.

The levy implemented from July 1, 2015 resulted in hue and cry from the trade community, which largely comprises non-filers.

Subsequently, the government gave in to the traders’ demand and cut the rate to 0.3 percent on July 11 through a presidential ordinance.

Initially, the revised rate was till 30 September. Later, it was extended for another month to 30 October. There were other extensions. And, recently the reduced rate incentive was scheduled till 31 December.

“This is the last extension,” a senior tax official said.

The business community is still not satisfied and demanding of the government to withdraw the withholding tax.

Realising the sensitivity of the situation, the finance minister constituted committees comprising senior officials of the FBR and representatives from the business community to find out a solution to bring persons, having taxable income, into the tax net.

Three such committees have finalised their proposals and soon an amnesty scheme or incentive package will be announced for traders to document their businesses.

The FBR sources said the new tax added a large number of return filers for the tax year 2014.

The sources said the number of return filers reached to around one million for the tax year 2014 – compared with around 0.8 million recorded on the deadline for filing income tax returns last year.

At the time of implementing the withholding tax, the FBR had estimated around Rs70 billion as revenue for the fiscal year of 2015/16, but after the reduction, the estimate had gone down half to Rs35 billion.

However, the collection under this head was still not as per the revised estimates. The revenue body managed to collect only seven billion rupees in the first four months of the current fiscal year.—Published in The News