The Central Board of Revenue (CBR) will charge 0.1 percent withholding tax on cash withdrawn through ATM abroad against credit cards issued in Pakistan. But, withholding tax is not levied on cash withdrawals through ATM in Pakistan against credit cards issued outside Pakistan. This withholding tax is also not deducted on cash payment against home remittances.
Moreover, the levy is not applicable on credit cards issued by the non-banking companies like 'Diners Club'.
The CBR on Saturday issued income tax circular number 4 of 2005 to clarify various issues pertaining to withholding tax levied on cash withdrawals and taxation issues relating to banks.
Responding to a query whether the incidence of this tax is on the account holder or on the recipient of cash, the CBR said that the incidence of withholding tax is on the person in whose name the account, deposit or any other arrangement exists and from which a cash withdrawal in excess of Rs 25,000 is made.
About maintenance of detailed record of taxpayers by the banks, the CBR said that it is necessary that such tax is deposited in the Government Treasury in his/her/its name with related particulars to allow credit of tax deducted under section 231A to the person from whom it is deducted.
The CBR has also clarified that the withholding tax will not be applicable on cash withdrawals by banks from accounts maintained with sub-treasury for their day-to-day cash requirements.
Explaining the levy of withholding tax on withdrawal from ATMs for meeting day to day requirements, the CBR said that generally the withdrawal limit per day is below Rs 25,000 and therefore, withdrawals for day-to-day requirements by default do not attract withholding tax. However, in case cash withdrawal per transaction exceeds Rs 25,000, withholding tax would be attracted.
The CBR has also explained the levy regarding account closing through clearing referred in Income Tax Circular Number 1 of 2005 of July 5, 2005. The Circular 1 said that the bank account from where withdrawal is made shall be debited by the amount equivalent to 0.1 percent of payment at the time a cash withdrawal is made.
However, in case an account is being closed through a clearing transaction or there being no balance in the account on encashment of a cheque, the bank shall make the deduction of tax from the amount being withdrawn and the balance after deduction shall be paid to the person making the withdrawal.
To explain whether clearing is cash withdrawal, the CBR has explained that the clearing transaction referred to in Circular No 1 of 2005 has been used with reference to clearance of the account and not with reference to clearing transactions normally understood in banking terminology. Transactions through "clearing house" are not cash withdrawals and therefore withholding tax is not attracted.
Whenever there is a cash withdrawal of full amount or amount of withdrawal and tax involved exceed the balance, then either the bank should refuse payment on account of "withdrawal amount exceeds the balance" or make payment to the person presenting the instrument after setting aside the amount of tax involved.
Following is the text of Income Tax Circular 4 of 2005 to specify query and its clarification on different banking issues relating to withholding tax:
Subject:
WITHHOLDING TAX ON CASH WITHDRAWALS FROM BANKS UNDER SECTION 231A TO THE INCOME TAX ORDINANCE, 2001 - CLARIFICATION REGARDING:Through the Finance Act, 2005, Government has imposed withholding tax with effect from July 1, 2005 @ 0.1% under section 231A of the Income Tax Ordinance, 2001 on cash withdrawals from banks exceeding Rs 25,000/-. Several queries/issues raised in this regard have been considered by the Board and are clarified as under:
ISSUES RAISED BOARD'S CLARIFICATION Whether tax incidence is on the account holder or on the recipient of cash?
-- The incidence of withholding tax is on the person in whose name the account, deposit or any other arrangement exists and from which a cash withdrawal in excess of Rs 25,000 is made.
-- Whether withholding tax is attracted on issuance of bearer Pay Order or other similar banking instrument either by debiting an account, deposit or any other arrangement, or against cash received?
-- Withholding tax is attracted.
-- Whether withholding tax is attracted on encashment of Pay Order or other similar banking instruments?
-- Withholding tax is not attracted.
-- Whether withholding tax is attracted on payment of cash at the counter of the bank against home remittances from abroad?
-- Withholding tax is not attracted on cash payment against home remittances.
-- Whether withholding tax is attracted on cash withdrawn from ATM outside Pakistan against credit card issued in Pakistan?
-- Withholding tax is attracted.
-- Whether withholding tax is attracted on cash withdrawal from ATM in Pakistan against credit card issued outside Pakistan?
-- Withholding tax is not attracted.
-- Whether withholding tax is attracted on credit card issued by Non-banking companies like Diners Club?
-- Withholding tax is not attracted.
-- Account closing through clearing referred in Circular No 1. Whether clearing is cash withdrawal?
The clearing transaction referred to in Circular No 1 of 2005 has been used with reference to clearance of the account and not with reference to clearing transactions normally understood in banking terminology.
Transactions through "clearing house" are not cash withdrawals and therefore withholding tax is not attracted.
Whenever there is a cash withdrawal of full amount or amount of withdrawal and tax involved exceed the balance, then either the bank should refuse payment on account of "withdrawal amount exceeds the balance" or make payment to the person presenting the instrument after setting aside the amount of tax involved.
Whether withholding tax is attracted on cash withdrawals by banks from accounts maintained with sub-treasury for their day-to-day cash requirements?
-- Withholding tax is not attracted.
-- Whether withholding tax is attracted on withdrawal from ATMs for meeting day-to-day requirements?
Generally, the withdrawal limit per day is below Rs 25,000 and therefore, withdrawals for day-to-day requirements by default do not attract withholding tax. However, in case cash withdrawal per transaction exceeds Rs 25,000, withholding tax would be attracted.
Would the banks be required to maintain detailed records in this regard?
What shall be the time frame for deposit of tax by the banks into the Government Treasury?
Can an account holder demand a certificate of tax deduction from the bank at any time during the year?
In order to allow credit of tax deducted under section 231A to the person from whom it is deducted, it is necessary that such tax is deposited in the Government Treasury in his/her/its name with related particulars.
For the reasons stated above and to ensure verification of taxes paid and processing of refund claims, the new automated tax payment system introduced w.e.f. 1st July, 2005 does not accept any tax payment without the NTN or CNIC of the withholding agent as well as of the person from whom the tax has been deducted/ collected.
The revised withholding tax rules already notified vide SRO 641(I)/2005 dated 27th June, 2005 require payment of all taxes collected/deducted within seven days from the end of each fortnight.
The revised withholding tax rules also provide for an annual certificate of all taxes deducted/collected. However, a person can demand for a certificate covering a specific period.
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