Banks asked to deduct up to 3pc tax on foreign funds transfer
KARACHI: Government asked banks to impose up to three percent tax on foreign funds transfer made through plastic card in a new finance bill.
The finance bill for the next fiscal year of 2018/19 proposed a new advance tax levy on individuals remitting amounts abroad through credit, debit or prepaid cards.
A new section (236Y), inserted into Income Tax Ordinance, 2001 through Finance Bill 2018, bounds banks to collect one percent advance tax from filers of income tax returns and three percent from non-filers who transfer money abroad.
Banks are required to collect advance tax at the time of transfer of any sum remitted outside Pakistan on behalf of any individual who has completed a credit, debit or prepaid card transaction with a foreign resident.
Tax officials said the taxation is to check the unreported circulation of money. A large number of Pakistanis are making online payments through credit or debit cards for direct purchases from foreign sellers.
Government is tightening noose around undocumented transfer of foreign exchange from Pakistan. Recently, it announced a number of measures to check outflow of funds from the country that is facing depletion of foreign reserves.
In March, the central bank proposed a legal amendment to allow law enforcing agencies to question international passengers about foreign exchange currencies in a bid to curb money laundering. State Bank of Pakistan (SBP) proposed amendments in Protection of Economic Reform Act 1992 to empower law enforcing agencies to get declaration of cash foreign currencies from people coming to the country or going abroad. Currently, a passenger can carry up to $10,000 or equivalent notes of another currency while travelling abroad. But, law enforcement agencies find themselves helpless because of their inability to question the passengers about the source of cash and other details to curb money laundering. Supreme Court has also directed SBP to submit reports on all foreign currency transactions above $50,000 from Pakistan during 2017/18.
The Federal Board of Revenue, after the amendment proposed by the finance bill for FY2019, would be able to identify people making large payments and remain out of the tax net. The tax is adjustable against liabilities of taxpayers, the officials said.
The finance bill advised banks to provide cash withdrawal details of their clients with the tax authorities. Banks were recommended to share list of individuals containing particulars of cash withdrawals exceeding Rs50,000 in a day and tax deductions from filers and non-filers, aggregating Rs1 million or more during each month. If implemented, the law would require banks to collect 0.3 percent of withholding tax on cash withdrawal by filers and 0.6 percent by non-filers.
The tax officials said the information would be obtained from banks in order to discourage cash economy and to identify source of income of such people.
