The FBR has placed withholding tax on all Pakistan Real-time Interbank Settlement Mechanism (PRISM) transactions at banks.
The PRISM transactions have now been subjected to withholding tax under section 236P of the Income Tax ordinance 2001.
The federal government, earlier this year, in a move to widen the tax net; introduced a 0.6% withholding tax on every banking sector transaction valuing over Rs 50,000 conducted by a non-filer. This was reduced to 0.3% after pressure from traders. The traders however still carried out countrywide protests against the withholding tax demanding it to be completely withdrawn.
The problem that the traders are facing is that if they remain out of the tax net by not filing income tax returns, they have to pay 0.3% withholding tax on every banking transaction. On the other hand if they do file their income tax returns, then they have to accurately declare their assets and actual sales which will push them in the higher income tax slabs and subject them to the standard 17% sales tax.
The only remaining loophole which has now been closed by the FBR by subjecting PRISM transactions to withholding tax were the transactions processed under real-time gross settlement (RTGS) systems that money market desks of banks use to settle their daily interbank transactions. RTGS uses PRISM as a backend mechanism to settle daily transactions. The RTGS facility is available to customers as well, which they can use through their respective branches. The minimum amount for an RTGS transaction is Rs 100, 000.
Customers were able to avoid the 0.3% withholding tax by using RTGS facility rather than using, for example, inter-bank fund transfer (IBFT) facility or transferring money through automated teller machines (ATM) both of which are subject to 0.3% tax.
Finance Minister Ishaq Dar has been under pressure to broaden the tax base by the International Monetary Fund (IMF) under the extended fund facility of $6.64 billion. By plugging such loopholes, he aims to broaden the tax base.
