KARACHI: The Federal Board of Revenue (FBR) has issued explanation regarding new withholding tax provisions applicable to banking companies.

Banking instruments and channels are used to acquire assets and incur major expenditures using untaxed money. Unreported business transactions are also conducted through these means.

In order to bring non-compliant taxpayers into tax net and to document transactions of untaxed amounts through banking channels, a new section 236P has been introduced in the Income Tax Ordinance, 2001 through Finance Act, 2015, requiring every banking company to deduct tax of 0.6 percent from non-filers,  at the time of sale of any instrument, whether against cash or otherwise, including demand draft, pay order, special deposit receipt, cash deposit receipt, short term deposit receipt, call deposit receipt, rupee traveler’s cheque or any other instrument of such nature; and at the time of transfer of any sum through cheque or clearing, interbank or intra bank transfers through cheques, online transfer, telegraphic transfer, mail transfer, direct debit, payments through internet, payments through mobile phones, account to account funds transfer, third party account to account funds transfers, real time account to account funds transfer, real time third party account to account fund transfer, automated teller machine (ATM) transfers, or any other mode of electronic or paper based funds transfer.

However, through Income Tax Laws (Amendment) Ordinance, 2015, the rate has been reduced from 0.6 percent to 0.3 percent w.e.f. July 11, 2015. This reduced rate will remain effective until 30.09.2015. Rate of deduction of tax under this section shall remain 0.6 percent from 01.07.2015 to 10.07.2015.

Rate of deduction of tax under this section shall be 0.6 percent from 01.07.2015 to 10.07.2015 and from 01-10-2015 onwards.

The bank account from where transfer is being made (through cheque, online or online banking or any other mode) shall be debited by the amount equivalent to 0.6 percent of payment, at the time the transfer is made.

This provision which comes into force w.e.f. July 01, 2015 shall not be applicable to PRISM transactions or transfers for tax payments. However, if an amount is transferred from an account of a customer of Bank A to an account of a customer of Bank B through PRISM, section 236P shall only be inapplicable for the customer of Bank A, if the said customer of Bank A is maintaining a settlement account in PRISM i.e. a PRISM Participant’s account only.

Transfer of Zakat from a bank account shall also not attract provisions of this section, being in the nature of government levy. Similarly, no tax shall be deductible where the value of sale of instruments or amount being transferred is Rs.50,000/- or less in a single day. This threshold is to be considered separately for sub-section (1) and sub-section (2) of section 236P.

Certain other queries by banks and other taxpayers are being received in respect of section 236P, for which a detailed circular shall be issued shortly in this regard.

Moreover, an amendment in section 231A has also been made whereby rate for non-filers has been increased from 0.5percent to 0.6percent. Similarly for section 231AA rates have been revised and for filers the rate is 0.3percent and for non-filers it is 0.6percent. By virtue of another amendment, a new section 236R of the Income Tax Ordinance, 2001 has also been introduced in the Income Tax Ordinance, 2001 requiring every banking company, financial institution, foreign exchange company or any other person responsible for remitting foreign currency abroad to collect advance income tax from the payer of education related expenses, at the rate of 5percent of the amount being remitted abroad.