ISLAMABAD (March 29 2007): The Central Board of Revenue (CBR) will take policy decision on the acceptance of withholding tax statements at banks in cases where the agents have deducted 2 percent extra tax from suppliers operating without National Tax Number (NTN) or Computerised National Identity Card Number (CNIC).
Sources told newsmen on Wednesday that CBR Chairman M Abdullah Yusuf would approve the strategy to deal with persons under the new automation system where section 153 (8A) of the Income Tax Ordinance 2001 is applicable.
Explaining section 153 (8A) vis-à-vis automation project, sources said that the Board has made it mandatory for the taxpayers and withholding tax agents to specify the NTNs on the new Computerised Payment Receipt (CPR) at banks from April 2007.
Banks would not accept withholding tax challan with incomplete particulars of the taxpayers and their 'payees' ie from whom tax is being deducted, including employees, agents, vendors and suppliers. No single or multiple withholding tax challan will be accepted with incomplete particulars of the taxpayers and suppliers from April 1.
The CBR decision clearly indicates that withholding tax challans having no NTN/CNIC of persons from whom tax is being deducted would not be entertained at banks. On the other hand, to create a disincentive for the informal sector, where supplier of goods and services as well as a person executing a contract does not disclose NTN/CNIC, withholding tax would be enhanced by 2 percent over and above the normal rate.
This measure was taken in last budget to encourage documentation of the economy. Therefore, withholding tax rate would be enhanced from 3.5 percent to 5.5 percent in cases operating without NTNs/CNICs.
According to section 153(8A), 'Every person from whom tax is being collected shall disclose his National Tax Number to the withholding tax agent. In case of there being no National Tax Number (NTN), Computerised National Identity Card Number (CNIC) shall be provided. Where a person fails to disclose his NTN or CNIC number, as the case may be, at the time of collection or deduction of tax, the rate of withholding tax shall be two percent'.
Some of the withholding tax agents raised query whether banks would accept those challans where extra 2 percent tax was deducted in the absence of NTN/CNICs. For example, withholding tax agents deducted enhanced rate of 5.5 percent from suppliers without NTN/CNICs, but the Board had to clarify its acceptability at banks.
Sources said that section 153(8A) and tax automation projects are two separate issues, which are not inter-linked. Similarly, there is also no clash between the implementation of the ongoing automaton project and the section 153(8A) of Ordinance 2001.
To tackle the situation effectively, sources said, the law has to be seen in the context of the practical difficulties and circumstances/business environment in which it is being implemented. Firstly, accept withholding tax challans covered under section 153(8A) at banks, but tax credit would not be given in cases where NTN/CNICs numbers are not produced.
The person not ready to disclose identity should not be entertained. Secondly, there is a suggestion to abolish section 153(8A) of the Income Tax Ordinance in coming budget and introduce heavy penalty regime for persons not disclosing NTNs/CNICs. Certain developed countries have tax rate up to 35 percent where identity is not disclosed. Thirdly, the Board can devise an interim implementation strategy of the project in April.
A temporary mechanism would cover period from April-June till the announcement of next budget. Fourthly, gradually enforce the NTN/CNICs condition for acceptance of challans at banks. For example, it is mandatory for the income tax department to only accept complete income tax returns. But, practically incomplete returns were also accepted in the past.
Fifthly, another suggestion is to temporarily postpone the automated tax deposit system. The date of announcement of project has been conveyed to the banks through a letter. These instructions have no status of law and could be amended.
Sources said that CBR Chairman would take the final decision for smooth implementation of the project. The State Bank of Pakistan (SBP) and National Bank of Pakistan (NBP) were having regular meetings with the CBR for timely implementation of the project.
Sources added that the scheme of the automated revenue collection system is to minimise the chances of filing incorrect/deficient statements/claims for tax credits and timely payment of refunds, wherever due to a taxpayer.