Shrinking the tax net?: Exchange companies exempted from tax on cash withdrawals

Move to encourage much-needed foreign flows, say officials.

ISLAMABAD:

In a bid to encourage foreign inflows, the federal government has exempted exchange companies from the payment of 0.2% advance tax on cash withdrawals from banks, according to a notification issued here on Tuesday by the Federal Board of Revenue (FBR).

The facility will be available only to those exchange companies that are registered with the State Bank of Pakistan (SBP). Besides, these companies will be required to maintain dedicated bank accounts for foreign exchange transactions; a requisite aimed at avoiding misuse of the facility.

Through the Money Bill 2011-12, the government had reduced the chargeable rate from 0.3% to 0.2%, in a bid to ease liquidity constraints of major institutions who were avoiding such transactions due to high tax rate. The federal government charged 0.2% withholding tax on bank transactions above Rs25,000.

An official of the FBR said the decision to exempt exchange companies from the levy was taken to remove hurdles in the flow of much-needed foreign exchange. He said the authorities have apprehensions that the facility could be misused. The SBP has devised a mechanism in consultation with the ministries of finance and law to plug loopholes.

To claim the exemption, exchange companies will have to produce an exemption certificate issued by the commissioner of Inland Revenue. The commissioner will issue the certificate after obtaining relevant details and particulars of their bank accounts.

The official said that that these accounts must not be used for handling other transactions. Authorities presently do not have complete details of such accounts, as each exchange company has opened separate accounts for beneficiaries.

During the first half of the current fiscal year, the government collected Rs5.8 billion on account of cash withdrawals – 15.6% or Rs1 billion less than last year, because of a reduction in rates. The collected amount was 3% of total withholding tax collection.

Foreign remittances are already exempted from income tax. There have been proposals to tax remittances beyond a threshold, as scores of cases have been reported where influential people re-routed their earnings to evade income taxes. “Such a proposal has already been discussed for the upcoming budget, but chances of its approval are very low,” said an official of the FBR.

FBR Foundation exempted from income tax

In what appears to be a conflict of interest and a possible avenue for exploitation, the FBR on Tuesday also exempted donations to, and the income of, the FBR Foundation from income taxes. According to the statutory regulatory order issued in this effect, any amount donated to the FBR Foundation, and all of its income, will be exempted from income tax.

When questioned about a possible conflict of interest, an FBR official maintained that the Foundation’s income and donations will be used solely for the welfare of its employees. He claimed that the government has not provided any seed money for the foundation, and that the entity was established with the efforts of FBR employees.

Published in The Express Tribune, April 25^th, 2012.

e'>X�n P5� �� nt-size:8.0pt;font-family:Olisipone;mso-bidi-font-family:Olisipone; color:black;letter-spacing:-.25pt'>Allied Bank posted consolidated net profit of Rs3.09 billion in the first quarter of 2012 against Rs2.53 billion on the back of higher non-markup income and lower provisioning.

 

The result was a surprise as analyst had forecast net profit to stand around the Rs2.79 billion mark.

The bank also announced its interest in conducting due diligence on HSBC Pakistan operations, potentially leading to an acquisition bid.

This took the number of interested parties to five with Habib Bank, Silkbank, MCB Bank and KASB Finance already named as potential buyers for the HSBC’s local assets estimated around Rs6.0 billion to Rs7.5 billion by AKD Securities.

Dividend income jumped five folds to Rs1.72 billion against Rs327 million in the same period last year.

The result also contained a negative surprise in the form of a sharp decline of 21% in net interest income to Rs4.87 billion. On a more positive note, the bank also announced a surprise interim dividend of Rs2.00 per share

Meanwhile, Habib Metropolitan also declared its quarterly statement with profits rising 17% to Rs1.21 billion on a yearly basis.

Published in The Express Tribune, April 25^th, 2012.