A vague provision in Federal Excise Rules, 2005 is creating practical difficulties the financial institutions to identify remittance as franchise fee, technical fee, or royalty, for deducting withholding tax, it is learnt. According to sources, rule 43A(7) has authorised the banks to deduct 10 percent withholding tax when any remittance is made on account of a franchise fee, technical fee, or royalty.
They said the banks could only deduct the amount of duty at the applicable rate from such remittance, if they are satisfied that the franchise has not paid duty as per requirement.
The banks after deducting the same are also liable to issue a certificate on their letterhead, showing the name and registration number of the franchisee and the deducted amount of duty besides depositing the same against their own monthly return without any adjustment or deduction.
However, the banks are virtually disputing every remittance as royalty/technical or franchise fee and accordingly deducting duty thereon, creating practical difficulties for both banks and its customers.
Sources said that banks say that there is a vague and wider ambit of the term franchise in Federal Excise Rules, 2005, which has left no option but to treat every remittance as royalty/technical fee or franchise fee and deduct duty accordingly.
Sources further said this move was aimed at avoiding legal proceedings of tax department in case of any payment, which may later be identified as royalty/technical or franchise fee, was remitted without any deduction.
They also urged the authorities concerned to omit or amend the said clause through Finance Act 2011-12 in order to provide maximum relief to the stakeholders.