FBR highlights provisions to increase cost of doing business for non-filers

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KARACHI: Federal Board of Revenue (FBR) has highlighted provisions of tax laws through which cost of doing business for non-filers has been increased further by applying higher tax rates of payments and transactions made during fiscal year 2016/2017.
The FBR said that in fiscal year 2014/2015, a distinction was introduced between filer and a non-filer. Higher rates were prescribed for non-filers in respect of certain payments/transactions. Continuing with the policy of increasing cost of doing business for non-filers and consequently encouraging them to file returns, new withholding tax rates for non-filers have been introduced or existing rates have been enhanced for the following payments and transactions.
— A new sub-section (1A) has been inserted in section 231B of Income Tax Ordinance, 2001 through which an adjustable advance tax has been imposed at three percent of the value of motor vehicle if a non-filer intends to acquire a vehicle through lease. The advance tax shall be collected by a leasing company or a scheduled bank or a development finance institution or a modaraba at the time of leasing of motor vehicle to a non-filer. The advance tax collected under this section shall be adjustable against the normal tax liability of the non-filer at the time of filing of income tax return.
— A new sub-section 236U has been inserted in the Ordinance through which an adjustable advance tax has been introduced to be collected by an insurance company from a non-filer at the time of payment of premium of general insurance or life insurance. The insurance companies shall collect advance tax at the time of collection of premium or contribution for general insurance or life insurance from non-filer. The rates of collection of advance tax have been prescribed in First Schedule. The rate of advance tax for payment of general insurance premium is 4 percent of the premium paid whereas the rate of advance tax for payment of life insurance premium is one percent of the premium paid. Advance tax under this section shall not be collected in case of life insurance if the premium amount is below Rs200,000 per annum.
— The rate of tax deduction from payment of dividend to a non-filer shall be 20 percent as against the filer for which the rate of tax deduction shall continue to be 12.5 percent.
— Finance Act, 2016 has also introduced differential tax rate of 15 percent for individual and Association of Person (AOP) who are non-filers and earn dividend income from investment in mutual fund. For the purpose, a new table has been substituted in First Schedule. However, the tax rate for a filer individual and AOP shall continue to be 10 percent.
— Under clauses (a) and (b) of sub-section (1A) of section 152 of the Ordinance, contractual payment was subject to tax deduction at 6 percent. On the other hand, payment on execution of contract under sub-section (2A) of section 152 was subject to tax deduction at 7 percent. The FBR said there was confusion in the field as to which contract fall sunder the ambit of 6 percent withholding tax. Therefore in order to remove the confusion, withholding tax on contractual payments covered under sub-section (1A) of section 152 has been prescribed at 7 percent for filer whereas withholding tax rate of 12 percent has been prescribed for non-filer.
— Different treatment was provided in the law for payment to non-residents on the basis of status of being a company or non-company as well as on the basis of being filer or non-filer. In order to provide uniform treatment for resident and non-resident contractors, the tax rates are rationalized as under:
(i) 10 percent of the gross amount in the case of sports persons;
(ii) 7 percent in case of a filer and 12 percent in case of a non-filer person.
— Finance Act 2016 has introduced separate tax rate for non-filers for deduction of tax from prize bond winnings and cross-word puzzles. Accordingly, for the non-filers the rate of tax deduction has been increased from 15 percent to 20 percent. For filer, however, the rate of 15 percent has been retained.
— Finance Act 2016 has introduced differential tax rates for non-filers for taxation of capital gain earned from disposal of securities. For the filers, the tax rate has not been changed. However, for the tax year 2017 the rate of tax has been prescribed as:
1. Where holding period of security is less than 12 months: rate of tax for filer is 15 percent and for non-filer is 18 percent.
2. Where holding period of security is 12 months or more but less than 24 months: rate of tax for filer is 12.5 percent and for non-filer is 16 percent.
3. Where holding period of security is 24 months or more but the security was acquired on or after July 01, 2012: rate of tax for filer is 7.5 percent for filer and 11 percent for non-filer.
4. Where the security was acquired before July 01, 2012 the rate of tax is zero percent for both filer and non-filer.
— Finally, a new sub-section (4) has been inserted in section 169 of the Ordinance, which lays down that where differential withholding tax rates apply for the non-filer and the tax collected or deducted is a final tax, then the final tax in respect of the non-filer shall be the rate of filer and the excess tax deducted or collected from non-filer shall be adjustable against the return filed for the tax year.

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