KARACHI: The government may again bind foreign exchange companies to deduct withholding tax on cash withdrawal – which will bring to an end of three-year exemption given to them, sources said on Monday.
The Federal Board of Revenue may remove exemption from withholding tax deduction on cash withdrawal, granted to foreign exchange companies because of the misuse of the facility, they said.
The FBR is mulling to take away this exemption in the light of budget proposals from the tax managers.
The FBR, through a notification on April 18, 2012, granted exchange companies the exemption from deduction of withholding income tax on cash withdrawal.
An amendment, clause (61A), into the Income Tax Ordinance, 2001 reads: “The provision of Section 231A shall not apply in respect of any cash withdrawal by exchange companies duly licensed and authorised by the State Bank of Pakistan on their bank accounts exclusively dedicated for their authorised business related transaction.”
Tax managers advised deletion of this concessionary clause and an imposition of a nominal amount of withholding tax on cash withdrawal to detect the informal transactions.
According to the proposals, exchange companies are misusing this facility and most of them are not even filing income tax returns.
The budget proposals said exchange companies are issuing abundant of foreign currencies against local currency. However, there is no such record about the persons withdrawing fund.
Sources said recent incidents of currency smuggling could be attributed to this flaw.
Banks, under the Section 231A of the Ordinance, are authorised to levy 0.3 percent withholding tax on the cash withdrawal of Rs50,000 for income tax return filers and 0.5 percent on non-filers.
The FBR was advised to increase the tax rate to 0.6 percent for non-filers to promote documentation of economy and motivate people to get registered with the tax authorities.