Practitioners seek withdrawal of flat income tax

KARACHI: Tax professionals on Monday demanded of the Federal Board of Revenue (FBR) to withdraw uniform tax rate on income derived from Bahbood savings certificates and pensioners account – two popular investment avenues for senior citizens and widows.

Pakistan Tax Bar Association (PTBA), in a letter to Member Policy FBR, said the tax rate will immensely increase tax burden on savers.  FBR, in a notice late last month, clarified that individuals deriving income from Bahbood certificates and pensioners benefit account are required to pay a 10 percent flat tax on gross amount of profit. 

Analysts said the uniform tax rate will boost investment in saving certificates offered by the National Savings.

State-run Central Directorate of National Savings recorded Rs5.43 billion investment in Bahbood certificates in July, while inflows in pensioners benefit account amounted to Rs1.37 billion, official data showed. Total investment in national savings schemes stood at Rs12.03 billion in July.

PTBA said the flat rate would entail withdrawal of exemptions and incentives given on certain investment by pensioners, widows and senior citizens.

Previously, if a saver earned profit of Rs350,000 from Bahbood certificates, there was no tax as the amount was below the taxable limit. A widow saver is, however, now liable to pay Rs35,000 in tax, the association explained. 

Similarly, a pensioner who earned a profit of Rs500,000 from pensioners benefit account incurred an income tax liability of only Rs3,500 earlier. But, now the pensioner has to pay Rs50,000 as 10 percent income tax.

“FBR inadvertently misinterpreted and overlooked the important provisions of laws, while clarifying that the yield or profit on investment in Bahbood certificates/pensioners benefit account is chargeable under Section 7B of Income Tax Ordinance, 2001 and tax rate would be 10 percent of such yield or profit irrespective of quantum of income,” PTBA added.  The country’s apex tax bar said income from such modes of investment bore a 10 percent withholding tax as full and final tax liability prior to the tax year 2004.

The tax law was, however, amended later to relieve senior citizens, pensioners and widows from an inconvenience of obtaining tax refunds against deduction below threshold income.

FBR, in a notice then, linked withholding tax exemption with income declaration at the time of returns filing. “The tax, if any, payable thereon would be paid as per normal tax rates along with the return of total income,” the notice read.  Tax practitioners said the FBR’s latest narration led to confusion. Pakistan Revenue Automation (Pvt) Ltd has modified the return form for the tax year 2017 in line with the new provision, which should be quashed, they added.