Uncertainty prevails over applicable date of withholding tax
View(s):Confusion continued to prevail this week over the 5 per cent withholding tax (WHT) on interest income with banks imposing the new tax rate on the entire duration of the deposit, and not from April 2018 onwards. Senior citizens who wanted to withdraw their one year fixed deposits (July 2017 to July 2018) were informed that any interest income of Rs. 1.5 million and above would be taxed at a flat rate of 5 per cent, instead of the period to April 2018 at the old rate (2.5 per cent) and thereafter at the new rate. In the case of others, the tax will prevail on whatever amount is received as interest income.
Confirming this, a senior banker told the Business Times that if a deposit is made in July 2016 and matures in July 2018, the WHT will not be imposed pro rata from April 2018 but for the entire two years. The new rate of 5 per cent WHT interest income on any rupee or foreign currency deposit came into effect in April 2018.
According to the IRD’s circular (SEC//2018/01) issued on March 16 “tax should be withheld at the time the interest /discount /profit is paid or credited, reinvested, accumulated or capitalised.” The government had earlier planned to charge the 5 per cent withholding tax under the new Inland Revenue Act from October 1, 2017. But the Treasury had to delay it due to the Supreme Court directive to amend certain clauses of the bill, a senior official of the Finance Ministry said.
The Finance Ministry has decided to implement all the provisions of the new tax law from April 1 owing to difficulties in maintaining two types of accounts in a single financial year, he pointed out adding that this notice appeared in the Ministry web site. He noted that payments made after this date – after April 1, 2018 – will be subject to the 5 per cent withholding tax.
But the commercial banks are relying on the guideline stipulated in the IRD circular when deducting WHT from interest paid to any person on any rupee or foreign currency deposit. The WHT increase is expected to raise additional revenue of Rs.26 billion to the state coffers.
The Inland Revenue Act to which many changes were made to the original draft, in the ‘committee stage budget debate in parliament in 2017 is not available in final form as yet.
This has created a clarity issue in the implementation of taxes including the WHT; a senior IRD official said adding that the department has so far not received any directive from the Treasury to issue a fresh circular relating to the applicable date of WHT.