The Federal Board of Revenue (FBR) has exempted Crop Loan Insurance Scheme (CLIS) and Livestock Insurance Scheme (LIS) from payment of withholding tax on under section 236 U of the Income Tax Ordinance 2001. In this regard the FBR has issued an SRO.06(I)/2016 here on Monday. According to the notification, the provisions of the section 236U will not apply to an insurance company collecting premium under CLIS and LIS.
Details revealed that a new section 236U was introduced in the Income Tax Ordinance 2001 through the Finance Act, 2016 which required collection of advance income tax @ 4% by every insurance company and agents of insurance company, sources said. The tax would be collected from non-filers at the time of collection of general insurance premium. At present, Finance Division is operating two schemes ie Crop Loan Insurance Scheme (CLIS) and Livestock Insurance Scheme (LIS). Through these schemes, the government reimburses the insurance premium of the loans obtained from the banks by the subsistence farmers. The reimbursement of claims of insurance premium to banks is made through the State Bank of Pakistan. The indemnity is payable in cases of natural calamities like flood, drought and disease.
Sources said with the enhancement of scope of CLIS up to 25 acres of land and increase in the credit disbursement for agriculture sector by banks, the amount for reimbursement of insurance premium claims has increased significantly. The imposition of advance income tax @ 4% on insurance premium through the Finance Act, 2016 would affect both the schemes - CLIS and LIS.
Since both the schemes - Crop Loan Insurance Scheme and livestock Insurance Scheme - are aimed at providing risk cover to mitigate losses in case of natural disasters, ensuring national food security, protecting national economic interests and development of backward/rural areas, therefore, these were required to be exempted from the purview of section 236U of Income Tax Ordinance, 2001 as provided in the Finance Act, 2016.
The ECC had approved the summary of Finance Ministry regarding withholding tax under section 236U of the Income Tax Ordinance, 2001 for non-filer insured agriculturists. Following is the text of the S.R.O. 06 (1)/2017 issued here on Monday: In exercise of the powers conferred by sub-section (2) of section 53 of the Income Tax Ordinance, 2001 (XLIX of 2001), and pursuant to the approval of the Economic Co-ordination Committee of the Cabinet vide case No ECC-137/24/2016, dated the 13th December, 2016, the federal government is pleased to direct that the following further amendment shall be made in the Second Schedule to the said Ordinance, namely:
In the aforesaid Schedule, in Part IV, after clause (99), the following new clause shall be added, namely: "(100) The provisions of section 236U shall not apply to .an insurance company collecting premium under: Crop Loan Insurance Scheme (CLIS); and (b) Livestock Insurance Scheme (LIS)."