The Federal Board of Revenue (FBR) has agreed to allow adjustment of withholding tax on cash withdrawals by branchless banking (BB) agents in budget (2017-18). Sources told Business Recorder here on Friday that the issue of adjustment of withholding tax on cash withdrawals by branchless banking agents was discussed during the 5th meeting of National Financial Inclusion Strategy (NFIS) Steering Committee.
The chairman NFIS has also advised State Bank of Pakistan (SBP) and the FBR to ensure that the tax proposal on cash withdrawals by BB Agents is included in Finance Bill 2017-18. According to details, BB agents conduct banking transactions on behalf of their customers and such transactions are being settled on a daily basis, which attract withholding tax when withdrawals exceed Rs 50,000 limit. It was, therefore, recommended to the NFIS Council that Federal Board of Revenue (FBR) may consider adjustment of withholding tax on cash withdrawals by BB agents to the extent of disbursements made to the clients.
During the last meeting, an official from SBP shared that NFIS Steering Committee had reviewed the proposals on insurance (including legal amendments for enhancing the scope of insurance and introduction of compulsory occupational health insurance scheme) and pension (including creation of regulatory authority, strengthening of pension framework & digitisation of pension systems, etc). These proposals would help promoting financial inclusion, financial depth and financial sector development. It was apprised that Steering Committee decided that the proposals directly related to financial inclusion will be implemented under NFIS and the rest of the proposals will be taken up by Securities and Exchange Commission of Pakistan (SECP) with concerned government departments and other stakeholders.
The chairman, after deliberating on the insurance and pension proposals, asserted that these proposals need to be firmed up in next 6 to 8 weeks, and thereafter these should be presented to the NFIS Council. The fifth meeting of the National Financial Inclusion Strategy (NFIS) Council was held in the Committee Room, Finance Division, Islamabad, under the chairmanship of Finance Minister Ishaq Dar. The meeting was attended by UN Secretary General's Special Advocate (UNSGSA) on Inclusive Finance for Development, Queen Maxima of Netherlands (through video link), NFIS Council members including governor SBP, finance secretary, secretary EAD, chairman FBR, chairman SECP, chairman PTA, chairman/representatives from finance departments of all provinces, AJK & Gilgit-Baltistan, and also special invitees from Finance Division and SBP.
In the opening remarks, Finance Minister Ishaq Dar said that government has considered Financial Inclusion as a key policy agenda for inclusive economic development. He reaffirmed the commitment under NFIS to enhance formal financial access to 50% of the adult population by 2020. The finance minister further highlighted the improvement in key macroeconomic indicators including lowest level of inflation, lowest policy rate of 5.75 per cent in last few decades and significant growth in private sector credit, etc.
Update on NFIS implementation: Noor Ahmed from NFIS Secretariat SBP briefly shared the progress with respect to NFIS implementation. NF1S Governance Structure has been fully operationalised and NFIS Council and Steering Committee held 4 meetings each.
Public-private partnership platforms have been developed through 7 technical committees (TCs) with lead from private sector. Secondly, 160 plus members have been taken on-board from ministries, the government departments, regulators, industry associations & networks etc. Thirdly, 18 working groups were formed under the TCs to develop and prioritise key actions/activities under NFIS along with timelines and responsibilities. Fourthly, 100 actions have been prioritised by TCs for implementation in a phased manner.
The NFIS has enhanced co-ordination among the regulators (SBP, SECP & PTA) and developed high level co-ordination with all key federal departments such as NADRA, FBR, BISP, Pakistan Post, etc, to achieve NFIS outcomes.
The NADRA verification cost has been brought down to Rs 10 for opening of new branchless banking accounts. Update on Asaan Mobile Account (AMA) Scheme/Digital Transaction Accounts: It was apprised that in order to achieve the headline NFIS Target, ie, 50 percent adult population to have a bank account by 2020, the SBP developed the Asaan Mobile Account (AMA) Scheme which will facilitate swift opening of a digital transaction account and help users shift financial behaviour from cash to digital financial services (DFS).
While briefing on the progress of the AMA Scheme, the following developments were shared: The proposal for adjustment of withholding (WH) tax on cash withdrawals by BB agents will be incorporated in Finance Bill 2017-18 as approved by NFIS Council in its last meeting.
The BB Regulations have been revised to facilitate string based account opening. Consent of BB players and telecommunication companies has been obtained and PTA has assigned a unified code "2262" which will be used to access the integrated platform.
The Third Party Service Provider (TPSP) licensing process is in progress and the licences are expected to be issued by May 2017. Strategy to launch cohesive mass media campaign has been developed in consultation with the industry to promote and educate general public about the scheme.
Promoting Women's Financial Inclusion: The Council was informed that after completing a stock taking exercise and workshop on the existing women centric financial services with banks, some recommendations have been put forward by the banking industry to promote women financial inclusion such as: Need for senior management buy-in for creating specialised women banking department/ division and products; increase gender diversity at work places; soften KYC requirements for remote account opening for women; dedicated financial literacy programmes for women and gender disaggregated data
Update on actions related to priority sectors: The Council was also updated on the priority sectors actions such as revision of legal framework to promote more secured lending, Financial Institutions (Secured Transactions) Bill and Financial Institutions (Recovery of Finance) Amendment Bill (FIRO) 2016, promotion of alternative delivery channels for financial service by creation of the Pakistan Microfinance Investment Company (PMIC) to provide liquidity to microfinance providers and establishment of EXIM bank for financing of export-oriented activities, Setting up of Pakistan Mortgage Refinance Company (PMRC) to promote the housing finance market, implementation of SBP's financial literacy initiatives V' Nation Wide Financial Literacy Programme: Pilot Child and Youth Financial Literacy Programme, overview of trends in key financial inclusion Indicators.
The NFIS Secretariat briefed the council about the progress of financial inclusion indicators during June 2015 to December 2016: The banking sector experienced growth in the overall account numbers and with value of deposits by 12 percent and 18 percent, respectively, the BB has continued its positive momentum. The BB accounts have reached 19.9 million from 10.8 million, showing a phenomenal growth of 84 percent. The BB accounts per 1,000 adults exhibited a growth of 79 percent. The BB deposits have increased to Rs 11.717 billion from Rs 8.856 billion, showing a growth of 32 percent. The number of BB agents have significantly increased to 351,912, which are providing financial services in largely under-banked and un-banked communities and improvement in lending to priority sectors including agricultural, microfinance, housing.
The SBP official commented that women financial inclusion is a key priority. There continues to be promising developments in increasing female workforce participation at banks and the third largest bank in Pakistan is now appointing female CEO. The governor further highlighted that the adjustment of the withholding tax on agents' cash withdrawal will support greater expansion of the agent network, and the digitisation of pensions and insurance payments will significantly help building the digital finance eco-system of the country.
The finance minister mentioned that all social safety net programmes disburse payments to only women. The digitisation of these can work to reduce the financial inclusion gender gap. Syed Samar Hasnain of SBP commented that a number of accounts have been opened but the usage in these accounts is still a challenge which can be overcome through implementation of AMA scheme.
The secretary finance also stressed the need for enhancing usage of the accounts. He inquired how usage can be improved and whether there is a need for donor support to help NFIS council in reaching their goals. He also emphasised on the need for developing partnerships with private sector to understand the financial needs of the financially excluded and under-banked communities.
Governor SBP Ashraf Mahmood Wathra responded that usage is being tackled through the growth of access points (agents, AIMs, POS, etc) and financial education of the customers, apart from pushing retailers to accept digital payments. With regard to developing partnerships with private sector, Syed Samar Hasnain of SBP commented that under NFIS governance structure, seven technical committees (TCs) and 18 working groups have been formed which are mostly chaired/co-chaired by representatives from private sector. With respect to donors support, the chairman highlighted that since 2013, all donors have returned to Pakistan and "we have developed a good working relationship with the donors."
The finance minister while emphasising Pakistan's commitment to create macroeconomic stability and growth, shared that Pakistan Poverty Alleviation Fund (PPAF) has been transformed into the PMIC with support from KFW and DFID. Also, the government is now planning to create a Pakistan Infrastructure Bank to support inclusive growth. The finance minister appreciated the efforts of NFIS Secretariat and stakeholders on working together and preparing landmark initiatives and proposals, including Asaan Mobile Account (AMA) Scheme.
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