FBR rejects Rs2bln refund claims of stock brokers

KARACHI: The Federal Board of Revenue (FBR) rejected the refund claims of at least Rs2 billion on account of withholding tax deducted by stock brokers on share transactions, sources said on Thursday. 

The sources said the refund claims were made from the members of the stock exchanges in around 100 cases. Officials at the Regional Tax Office (RTO), Karachi, declined to confirm the involved amount. 

But, sources said the amount is estimated at around Rs2 billion. Under a law, equity investors are required to pay withholding tax on share transactions and that is adjustable against their total liability.

The members of stock exchange withhold 0.1 percent of a total purchase or sale value and deposit the amount to the FBR within seven days of the collection. The sources said the brokers had claimed refunds on behalf of their customers.

The FBR rejected the said claims or retrieved the amount after the Sindh High Court rejected an applicant -- a stock exchange member -- who pleaded that stock brokers were legally authorised to claim the refunds.

The FBR said a person whose tax is deducted could only claim the refunds. Zafar Moti, a member at the Pakistan Stock Exchange said when withholding agents were authorised to adjust the deducted tax, “then why they were not allowed to claim the refunds for a subsequent disbursement.”

Another PSX member Arif Habib, however, said most of the members were already complying with the law prior to this judgment.  “However, those who have claimed the refunds will surrender the amount,” Habib said. But, the FBR has to settle the refund claims in any case.

The case was initially filed before the commissioner appeals after the RTO Karachi rejected the refund claims by a stock broker. The commissioner disallowed the claims on the ground that since the transactions didn’t belong to the brokers only an investor or customer could file such a claim. In 2012, the brokers filed an appeal before the Income Tax Appellate Tribunal, which retained the order passed by the commissioner appeals.

The applicant/broker, therefore, challenged the decisions before the Sindh High Court with a plea that since the certificate of deduction of the tax had been issued by the stock exchange in favour of the applicant relating to the entire transaction, including the transaction made by the applicant/broker on behalf of customers, the applicant had rightly claimed the adjustment. The applicant also pleaded that the amount would be distributed among his clients after the refund settlement.