Residents of the former Federally Administered Tribal Areas (FATA) face disappointment as their attempt to avoid withholding tax on National Savings Centre (NSC) certificates hits a snag. Their argument, based on the pre-amendment status of the Income Tax Ordinance in FATA, was rejected by the tax department.
Here’s why:
FBR’s Argument:
- NSC schemes are considered “government-security” under the 2001 Ordinance.
- Income from these schemes accrues in Pakistan, making it subject to withholding tax.
- Duty of NSC: The Directorate, not individual centers, manages the funds and earns income. Centers merely facilitate public access and pay out profits.
Residents’ Plea:
- Withholding tax on NSC certificates was deemed illegal due to the pre-amendment tax laws in FATA.
Outcome:
- Tax department prevails, upholding the applicability of withholding tax.
- FATA residents need to comply with the existing tax regulations on NSC investments.
Implications:
- This sets a precedent for taxation of similar schemes in FATA.
- Residents seeking tax exemption on NSC investments need to explore alternative strategies.
