Profits paid to accountholders: banks will submit complete info to tax authorities

The banks would now be required to submit complete information to the tax authorities about the profits paid to their accountholders. Explaining the major legal and procedural banking sector related changes in the Finance Bill (2013-14), Syed Naved Andrabi Advocate Supreme Court said that earlier on taking the plea of secrecy this information was given in lump sum to the tax authorities.
As per provisions of Section 165 of the Income Tax Ordinance 2001 read with relevant rules the withholding agents were required to file the statements with the FBR giving particulars of all the persons whose tax under different provisions of the Ordinance were withheld during a period.
The withholding agents especially the banks would not file the complete particulars of the persons from whom the tax on profit on debt or cash withdrawals was being collected on the plea that the provisions of the Banking Companies Ordinance, 1962; Protection of Economic Reforms Act, 1992; Foreign Exchange Regulation Act, 1947 did not allow the banks to divulge such information.
An explanation is being proposed which is comprehensive to allow FBR to collect such information from the withholding agents; especially the banks. The explanation reads as under; "For the removal of doubt, it is clarified that this sub-section overrides all conflicting provisions contained in the Protection of Economic Reforms Act, 1992 (XII of 1992), the Banking Companies Ordinance, 1962 (LVII of 1962), the Foreign Exchange Regulation Act, 1947 (VII of 1947) and the regulations made under the State Bank of Pakistan Act,1956 (XXXIII of 1956) , if any, on the subject, in so far as divulgence of information under section 165 is concerned'.
By insertion of this explanation the amendment in the relevant laws is not required anymore and the banks will now have to divulge such information. What reaction or effects will this have on the banking will have to be seen, he said. In continuation of an effort to gather information from the banks the FBR has made a final onslaught by inserting Section 165A into the Ordinance.
The said proposed provision will allow FBR not only to have online access to the central data base of a banking company but also may ask them to provide particular information about an account holder or an account or a transaction. This provision allows only FBR to call for the information and field formations ie, the Commissioner shall not be in a position to have access to such information directly; however, it is not clear as to whether the FBR would delegate this power down below or not. Till then the Commissioner would have to rely on the provisions of Section 176 of the Ordinance. In other words even after providing the information, if at all, to the FBR; yet the banks will be exposed to the ongoing queries by the field formations, only if the specific information relating to a specific account by giving the CNIC or account number is called, he said.
The rate of minimum tax has once again been enhanced from 0.5 to one percent of the turnover through appropriate amendments in Section 113 of the Income Tax Ordinance 2001 through Finance Bill (2013-14) issued on Wednesday.
Naved Andrabi said provisions of Section 120A of the Ordinance are proposed to be omitted. This means that the FBR shall have no power to introduce any whitening scheme under the garb of Investment as was done in the year 2008 by issuing Circular No 03 of 2008. A major change in Section 111 (1) has been proposed by adding the following proviso:-
"Provided that where a taxpayer explains the nature and source of the amount credited or the investment made, money or valuable article owned or funds from which the expenditure was made, by way of agricultural income, such explanation shall be accepted to the extent of agricultural income worked back on the basis of agricultural income tax paid under the relevant provincial law."
The above proposed proviso is a positive step towards bringing the agriculture income to tax as per the rates provided in the provincial agriculture laws. Generally, the agriculturists are not paying tax and those who claim to pay the same are doing so on the basis of land holding and not on the quantum of income that they earn. The agriculturist get away with actual or true taxation of income; as the Federal Government cannot tax agriculture income due to constitutional restrictions and lack of co-ordination between the federal and provincial taxation authorities. The agriculturist now claiming to have made an asset through agriculture income shall have to show evidence that on the said income he has paid agriculture tax on the prescribed rates and not on the basis of land holding, Naved Andrabi explained.
The rates of minimum tax have once again been enhanced from 0.5% to 1% of the turnover. Appropriate amendments in Section 113 of the Ordinance have been proposed. The provisions of Section 114 of the Ordinance provides as to who is to file the income tax return. As per Section 114(1)(b)(viii) of the Ordinance a holder of commercial and industrial electricity connection was required to file the tax return if the bill amount paid in a financial year was exceeds one million rupees; now it is proposed that the said connection holders shall file the return of income if the annual bill exceeds five hundred thousand only.
A new sub clause (ix) has also been proposed whereby a person registered with any Chamber of Commerce and Industry or any trade or business association or any market committee or any professional body including Pakistan Engineering Council, Pakistan Medical and Dental Council, Pakistan Bar Council or any Provincial Bar Council, Institute of Chartered Accountants of Pakistan or Institute of Cost and Management Accountants of Pakistan would now be required to file his tax return; irrespective of the fact as to whether he earns taxable income or not. This is a positive step towards increasing the tax base.
Similarly; it is being proposed that an individual who derives income from business is between rupees three hundred thousand and rupees four hundred thousand shall also file a return of income even if he is not required to pay tax on this income as per law. Another amendment is being proposed in Section 114(4) of the Ordinance whereby the Commissioner will not have the authority to allow a person to file a return beyond 30 days. In case of revise return it is being proposed that the tax payer be allowed to revise the return only after obtaining the written approval of the concerned commissioner.
The provisional assessment made and demand created u/s 122C of the Ordinance would become final and recoverable after 60 days of the service of the provisional assessment order. Now it is being proposed to reduce this time to 45 days. The said provision of law is harsh and creates problems for the tax payer on the issue of service as the procedure of service is not being followed. Further the said provision is also not appealable, Naved Andrabi added.