The Federal Board of Revenue (FBR) has drafted a new income tax circular, for banks, to clarify major tax related issues of banking sector and financial institutions relating to sections 140, 165, and 176 of the Income Tax Ordinance, 2001.

It is learnt that the FBR has finalised a new income tax circular to clarify these issues raised by banking sector.

Following is the draft of new income tax circular dated Jan 7, 2012 to be issued by the FBR for the banks and financial institutions: The scheduled banks in Pakistan, individually and through their representative body raised various queries relating to implementation of Circular No. 9 of 2011, compliance of Sections 140, 165, and 176 of the Income Tax Ordinance, 2001 ["the Ordinance"]. After meetings and consultation with the PBA, a set of mutually agreed modalities has been evolved, which mechanism would help streamline the implementation of Sections 140, 165, and 176 of the Ordinance without friction, undue delays, and extra hassle for the banking sector. Thus, hereinafter, the operations of the three provisions of the law will be governed by the guidelines/instructions as laid down under each in the succeeding paragraphs.

I. Section 140

2. The practice of delaying the execution of Section 140 by some of the bank branch managers particularly those at remote locations, on account of soliciting guidance from their head/regional offices, opinion from the legal experts, and even consent from the account-holders etc, has, in the recent past, emerged as a big hindrance for the IRS field formations, particularly due to the unequivocal formulation of the provision demanding outright execution (implementation) of the notice u/s 140 the moment it was served. Non-compliance, at times, has led to institution of punitive proceedings against the banks/managers. The situation warrants facilitative intervention at the Board level.

3. Accordingly, it has been decided that PBA will forthwith have issued an internal set of instructions from the head-offices of all scheduled banks in Pakistan for circulation amongst all of their branch managers outlining the implementation mechanics of Section 140 of the Ordinance, the main thrust of which will be that a notice u/s 140 must be implemented upon service (receipt) without any delay or dilly-dallying for any reasons whatsoever meaning thereby that the account will be ceased (frozen) immediately,balance (negative or positive) communicated, and the amount available (or to the extent of the notice) remitted/paid through Demand Draft/Pay Order/C hallan without any delay. Chief (Operations) will transmit copies of the internal instructions issued by the banks in due course to IRS field formations, which ideally, Inland Revenue Inspectors should carry at the time of service of notices u/s 140 of the Ordinance.

4. These instructions will be equally applicable to the recovery/attachment notices issued under the Sales Tax Act, 1990, and the Federal Excise Act, 1995.

5. The issuing authority must immediately withdraw the notice, in writing, once it has been fully executed to his/her satisfaction.

II. Section 165

6. Reportedly banks have faced problems while uploading withholding statements under section 165 as, in certain situations, the same get rejected at FBR's e-portal for want of Computerised National Identity Card (CNIC) and Computerised Payment Receipts (CPRs) in each and every case, which is not possible as many branches of National Bank of Pakistan do not issue CPRs and in cases other than individuals CNIC cannot be a basis for reporting. In order to solve the problems faced by the banks in reporting withholding of taxes at e-portal, it is decided that necessary amendments and modifications would be made in the existing format of e-statement, prescribed under section 165, giving multiple choice in respect of each person type for reporting as tabulated below:-

7. The prime objective of the entire exercise remains that not even a single account-holder's particulars go un-reported as is the intention of the law.

8. In view of non-issuance of CPRs by certain NPB branches, and rejection of e-statement of various banks at the FBR e-portal, it has been decided the banks should identify such NPB branches (not issuing CPRs) to Chief (Automation) FBR, who will get them resolved in consultation with the experts of Pakistan Revenue Automation Limited (PRAL) on priority basis.

III. Section 176

9. In order to streamline the implementation of section 176 of the Income Tax Ordinance, 2001, it is decided that: -

(a) Every scheduled bank will nominate (by name) at least two officers of adequate seniority in order of hierarchy divulging their complete contact details (including their cell phones, email address etc.). Any change in focal persons will be communicated to Chief (Operations) FBR, during next two working days, who, in turn, will transmit it down the line immediately.

(b) The departmental officers from all over Pakistan, instead of issuing notices under section 176 of the Ordinance to local branch managers, will, hereinafter, direct their notices to the designated focal persons at the Head Office of each scheduled bank.

(c) A notice u/s 176 issued by the Commissioner, or any other authority having Commissioner's approval, will requisition information from the banks in respect of a specific person:-

• In the case of individuals, on the basis of name and CNIC or the account number maintained by an individual or joint account holders; &

• In case of other entities, namely, companies, partnerships, non-profit organizations/trusts, or any other artificial juridical person on basis of nomenclature and NTN or Incorporation/Registration number or account number.

(d) The banks' focal persons, after scanning their complete list of account holders in all branches wherever located, will be obligated to respond to the notice-issuing authority within 10 days. If, however, the focal person is unable to provide the required information within the stipulated time, he/she will make a request in writing to the notice-issuing authority for extension, which under normal circumstances should be granted. All banks will be liable to provide the information by the expiry of the extended period.

(e) The banks will not be obliged to provide information if the notice under section 176 of the Ordinance, does not contain information as stipulated in Para 5 of this Circular. In case such a notice is received, the focal person will be entitled to decline it with a copy thereof to the Chief Commissioner concerned.

10. Chief (Operations), FBR, will be responsible for a rapid implementation and smooth operation And any hick-ups are to be brought to his notice both by the field formations and the banking sector for quick fixation.