Branchless banking agents: WHT exemption on cash withdrawals may be discussed today

The State Bank of Pakistan (SBP) and the Federal Board of Revenue (FBR) are expected to discuss today (Friday) a proposal of withholding tax exemption on cash withdrawals made by branchless banking agents at commercial banks. Sources told Business Recorder here on Thursday that the issue may be discussed at the 3rd meeting of National Financial Inclusion Strategy (NFIS) Steering Committee to be held at the SBP main building, Karachi.
The agenda of the third meeting of the NFIS Steering Committee included: presentation of a scheme for promotion of Digital Transactional Accounts (DTA); update on recommendations for promotion of digital financial services; rationalisation of verification costs for branchless banking accounts and exemption of withholding tax on cash withdrawals by branchless banking (BB) agents.
In order to facilitate mass enrolment of digital transactional accounts (DTAs), it is suggested that NADRA may consider providing additional data fields to all BB providers for opening of BB accounts, irrespective of their volume, under the agreed discounted price structure as per MOU signed by SBP and NADRA, sources said. Moreover, the SBP will be launching a scheme for mass enrolment of Asaan Mobile Accounts (AMA), wherein accounts will be opened through unified USSD or string channel. Therefore, it is also recommended that NADRA may facilitate the AMA scheme by allowing the same price ie Rs 10 per request for string based account opening, besides biometric verification service (BVS), as agreed upon in the MOU signed by the SBP and NADRA.
In this regard, a meeting of SBP and NADRA officials was held on December 16, 2016 wherein NADRA has agreed on the above recommendation. The meeting may also discuss exemption of withholding tax on cash withdrawals by branchless banking agents, sources said. Details revealed that the BB agents conduct banking transactions on behalf of their customers; therefore, the BB agents, during a day, settle payments of their customers cumulatively. The BB agents attract WHT, when they exceed Rs 50,000 limit, as result of making cash-out payments on behalf of their customers.
One of the options under consideration is that the accounts of the branchless banking agents at commercial banks and MFBs may be exempted from withholding tax on cash withdrawals. The second option is that the cash withdrawals from accounts of the branchless banking agents at commercial banks and MFBs may be exempted to the extent of disbursements made by branchless banking agents to their clients.
As per proposal, the banks engaged in branchless banking will convey the detail of accounts of their agents to banks where agents are maintaining their accounts (agents' banks). It is proposed that the BB providers will calculate aggregate disbursements made by each agent on a particular day. The information about aggregate disbursements made by each agent will be conveyed by BB providers to agents' banks on the next day. The agents' banks will refund the withholding tax deducted from agents' accounts to the extent of disbursements made by them.
The proposed risk mitigation measures to address major concern and other risks revealed that the agents will be required to maintain only one bank account to ease processing burden and facilitate seamless operation of this mechanism and the SBP, during inspection, will check that BB providers are calculating aggregate disbursements in a proper manner.
A meeting of SBP and FBR officials was held on December 16, 2016 wherein both intuitions agreed after deliberations to form a committee to review and finalise the above recommendation and sort out mechanism/ modus operandi in this regard. The meeting is expected to also discuss a scheme for promotion of digital transactional accounts (DTAs).
To achieve the long-term vision of universal financial inclusion in Pakistan, the NFIS identifies key reinforcing actions which include, inter alia, promoting digital transactional accounts (DTAs). National Financial Inclusion Strategy has set a target of increasing access to formal accounts from 16% to 50% by 2020. To reach this target by 2020, the SBP in consultation with the industry has developed a DTA scheme and the objectives are drive usage of services by existing customers via increased number of account-to-account transactions across networks, and by providing digital access to a range of quality financial services and improving access for new customers by efficiently opening accounts, particularly in rural areas.
The scheme, named as Asaan Mobile Account (AMA), will provide an easy, swift, secure and cost-effective channel for accessing the financial services. The scheme will leverage the existing achievements and use cases to develop a robust & sound digital payment ecosystem with greater participation of all stakeholders.
The AMA scheme will not only facilitate in transforming consumer behaviour towards digital payments but will also help in building the confidence of banks that a viable business case exists to shift their focus from OTC to m-wallets, sources added. Sources added that the said issues are expected to be discussed in the 3rd meeting of National Financial Inclusion Strategy (NFIS) Steering Committee.