ISLAMABAD, Jan 19: The government has decided to abolish withholding tax levied on telephones, outstation cheques and petroleum products from July 1, 2002.

Official sources told Dawn that the decision was in line with the International Monetary Fund’s (IMF) conditionalities for getting the poverty reduction and growth facility (PRGF).

The government had already abolished withholding tax on five items in the 2001-02 budget, on a pretext that the revenue generated through it was meagre.

According to official sources, the withholding tax levied on telephone bills, ranges from Rs50 to Rs400. The net revenue through the tax coming to national kitty is around Rs1.64 billion.

The committee to revise income tax ordinance, had though, recommended no change in withholding tax on telephone. The committee was of the opinion that since all the phone subscribers were required to file returns, withholding tax could be offset in the returns and adjusted against the tax liability. And the revenue yield was around Rs1.2 billion, which, it said, was also substantial.

Officials said the net yield from the sale of petroleum products to petrol pump operators on the value of their commission or discount is Rs237 million. Therefore, the withholding tax on petroleum was also planned to be done away with from the next financial year, they added.

Elaborating further, they said the withholding tax at 10 per cent of the commission was collected from petrol pumps. The revenue yield was small and the number of recipients of commission was too large, they added.

The committee to reform IT ordinance had also recommended abolishing the withholding tax on petroleum on the ground that the revenue generated through it was very small as compared to its total cost.

The tax authorities levied 0.3 per cent withholding tax on remittances through outstation cheques and drafts, while the NTN holders and inter-company transactions were exempted. The net yield from this is only Rs817 million.

According to the officials, the levy was claimed to be anti- documentation. However, the committee to revise the ordinance of 1979, in its report, declined the impression that the levy was anti-documentation, because the tax payers were exempted from this levy.

On the contrary, the committee recommended that this was a punitive measure against non-tax payers and would rather promote documentation. Therefore, it should be retained, the committee observed.

The withholding taxes were first introduced in late sixties, since then there has been growing emphasis on expanding the withholding tax net, a major source of income tax collection.

In 1979, there were only seven kinds of payments/transactions subject to withholding taxes, which increased up to 19 in 1994-95 and 25 in 1999-2000.