World Bank wants WHT levy on foreign exchange cash withdrawals from banks

The World Bank (WB) has asked the Federal Board of Revenue (FBR) to examine the possibility of levying withholding tax on withdrawal of foreign currency from banks in Pakistan. Sources told Business Recorder on Tuesday that the issue was discussed between the tax authorities and WB officials during a meeting on Tax Administration Reform Project (TARP) at the Board.
The WB officials were of the view that withholding tax on withdrawal of cash from banks should be extended to foreign currency accounts also. The FBR should apply withholding tax on cash withdrawals of foreign currency. During the meeting, the WB also asked the tax authorities to double withholding tax, from 0.3 percent to 0.6 percent, on cash withdrawals from banks, sources added.
They said that the government has to amend the Economic Reforms Act to take away protection on foreign currency accounts. Section 3 of the Protection of Economic Reforms Act, (PERA) 1992 has an overriding effect on Foreign Exchange Regulation Act (FERA), 1947, the Customs Act, 1969, the Income Tax Ordinance and other laws for the time being in force.
A separate amendment in the Economic Reforms Act would be required to make corresponding amendments in the Income Tax Ordinance 2001 for levying withholding tax on foreign currency withdrawals. Unless and until Economic Reforms Act is amended, it is not possible to amend the Income Tax Ordinance for levying withholding tax on foreign currency. If the government amends the Economic Reforms Act, there is a possibility to introduce necessary amendment in the Income Tax Ordinance.
Sources said that levy of withholding tax on foreign currency is part of active proposals of the WB. However, it has not yet been finalised at the level of the Board. The FBR is examining different proposals in view of WB recommendations, and a consolidated summary on taxation proposals would be moved to the Economic Co-ordination Committee (ECC) of the Cabinet. Other recommendations of the WB include immediate development of a comprehensive business process re-engineering (BPR) strategy.
Although, co-location has been achieved, full integration of income tax and sales tax must follow as soon as possible. The Board has to take effective steps for prevention of revenue leakage. The WB recommendations pertaining to compliance management include establishment of dedicated task force to bring un-registered taxpayers into the tax net and pursue non-filers and short filers of sales tax and federal excise duty.