KARACHI: A recently issued circular of the Federal Board of Revenue (FBR) has perturbed many senior citizens and widowed investors of the National Savings who have been slapped with 10 per cent tax on income. The two schemes — Pensioners Benefit Account (PBA) and Behbood Savings Certificates (BSC) — are exempted from withholding tax.

Circular 06 of 2017, issued on Sept 29, titled ‘Clarification on Behbood Certificates/Pensioners Benefit Account’ states, “As per section 7B of the Income Tax Ordinance, 2001, a tax shall be imposed at the rate specified in Division IIIA of Part l of the First Schedule on every person, other than a company, who receives a profit on debt from any person mentioned in clauses (a) to (d) of sub-section (1) of section 151. The tax shall be computed by applying the relevant rate of tax on the gross amount of the profit on debt. As per law, persons deriving income from yield/ profit on investments in Behbood Certificates/Pensioners Benefit Account are chargeable to tax under section 7H.”

BSCs, with a 10-years maturity period, were launched by the government in 2003. Though initially for widows, the scheme was extended to senior citizen aged 60 years and above with effect from January 1, 2004. With a maximum investment limit of Rs1,000,000, monthly profit is paid. Similarly, Pensioners’ Benefit Account (PBA) with a maturity period of 10 years was introduced in 2003, with a maximum limit of Rs5,000,000 and monthly profit.

Staff at various National Savings Centres has been unable to address the queries of elderly and widowed investors regarding the circular and income tax deduction.

Talking to Dawn, a source in the National Savings (NS) said that they have been getting queries since the circular was issued. “There is a lot of ambiguity and we would be approaching the FBR to clarify this, what is the practice regarding tax deduction. It is likely that it might not be applicable on our customers because our maximum limit is Rs5 million (50,00,000). We have sought clarification in this regard.”

“On certain schemes WHT is deducted at the time of profit disbursement but Behbood and Pensioners schemes were exempted. No income tax will be deducted on any of these schemes at the branch and the investor will have to declare it in his/her income tax returns.”

“How the FBR treats that paid profit is at their discretion. As far as we are concerned we are clear that we will not deduct any taxes at the time of disbursement of profits for these particular schemes,” the NS official added.

The circular adds, “The amount chargeable to tax under section 7B as per rates specified in Division IIIA of Part I of the First Schedule is to be paid at the time of filing of return of income.”

“However, as per clause (6) of Part III of the Second Schedule, the tax payable on any amount paid as yield or profit on investment in BSC or PBA shall not exceed 10pc of such profit. Although there are three progressive slabs of tax imposed under section 7B with the Lowest being 10pc for profit on debt up to Rs, 5,000,000, and the highest rate for profit on debt exceeding Rs50,000.000 is Rs5,625,000 plus 15pc of the amount exceeding Rs50,000,000, the rate of tax for Behbood Savings Certificate or Pensioners Benefit Account is not to exceed 10pc,” it added.

Talking to Dawn, Mr Ahmed, a pensioner said, “It is very unfair to the widows and pensioners, who are amongst the most marginalised segments in society. You are not doing anything for senior citizens and whatever little they have saved and invested. They are barely able to pull through. Many of the investors in the pensioners schemes are old folks who had their income tax deducted at source all their lives.”

Mrs Razvi, a widow with three school-going kids, says the levy of income tax on profit is totally unfair and unacceptable.

“I really count on this money every month because of my three kids. I know that a fixed amount will be coming and I rely on it. Anything less than that amount would make things much more difficult for me,”

“As for my mom, she is also a widow and has been a housewife always and these certificates are a significant part of her income as well,” says Mrs Razvi. “She has fixed costs every month and can’t afford to have 10pc lopped off,” she adds.

“What is a widowed senior woman with a fixed income to do? I invested in the Behbood Scheme because I am not financially savvy and risk averse when it comes to investments,” says Mrs Sami. “At this age, all of us are scared of risks and shocks. NSS profits are not a luxury but rather a lifeline.”

Published in Dawn, October 15th, 2017