ISLAMABAD (March 12 2003) : The IMF has recommended to the government of Pakistan to withdraw, in the budget 2003-04, across the board withholding tax exemption on all slabs of profit earned through National Saving Schemes (NSS).
As per Structural Performance Criteria and Benchmarks under IMF PRGF Arrangement for Fourth Review, the tax authorities have to eliminate all exemptions of withholding tax on interest income by June 30, 2003.
In budget 2002-03, the exemption to income through investment in national saving schemes made after July 1, 2001 was eliminated, whereas withholding tax on amount exceeding Rs 300,000 was maintained at 10 percent of the yield.
The limit of Rs 300,000 was slashed to Rs 150,000.
This was effective for investment made after July 1, 2002 and did not affect the investment already made.
However, according to official sources, the government would try its level best to check further cut in the exemption limit on NSS interest.
Bringing minimum NSS profit into the tax net would badly affect salaried class pensioners and authorities would make all-out efforts to ensure that the existing exemption limit is not further revised downward to zero-limit.
Sources pointed out that the imposition of 10 percent withholding tax on NSS profit even if the monthly profit is less than Rs 1000, would bring a major portion of the stakeholders within the withholding tax regime.
The exemption limit on annual income is Rs 80,000 as per income tax laws, whereas the total profit earned through NSS comes to around Rs 15,000 per year on the investment made up to Rs 150,000.
This amount of Rs 15,000 per annum is quite less than the exemption limit of Rs 80,000 for the purpose of levying 10 percent withholding tax.
They said that the government has already cut down the profit on NSS and any move to withdraw withholding tax exemption on amounts below Rs, 150,000 would have serious repercussions.
If the authorities managed to convince the international donors, the existing limit of Rs 150,000 would remain unchanged in future, sources added.