NBR's directive needed on PSP interest

We had purchased Protirakkhya Sanchaya Patra (PSP) i.e. Defence Savings Certificates in the Fiscal Year 1996-97 with a maturation period of eight years. The terms and conditions stipulated, among others, the rates of profit that would be paid to the purchasers when it is encashed, say after one year or two or three years and so on, and at maturation at the end of the eighth year. The rate of profit was attractive and people, especially the fixed income group, who generally avoid taking risks in investment projects unless some sort of government involvement is ensured resorted to purchase PSPs.

In addition to its being a good investment opportunity, the government through various national newspapers also focused that the Defence Savings Certificates are secure, dependable and above all completely exempt from Income-Tax (see, for example, The Daily Star, 23 June, 1997). However, when deduction of Income Tax at source started from the purchasers of savings instruments including PSPs after 11 June 1999, many banks and financial institutions started deducting profits from

PSPs even from those who purchased PSPs before 11 June 1999.

This was quite embarrassing to the government. At that juncture of time, the National Board of Revenue (NBR) came forward to rescue the purchasers of savings instruments by issuing circulars, and even by advertising in national dailies warning all concerned not to deduct the newly levied tax of 10 per cent at source from the buyers of savings instruments including PSPs purchased on or before 10 June, 1999.

Thus towards the end of December, 1999, the NBR in its advertisement in The Daily Star informed all concerned that the newly added Rule 52D to Income Tax Ordinance, 1984 regarding deduction of Income-tax at source "shall not be applicable for savings instruments purchased on or before 10 June, 1999". And that, "all banks and institutions concerned are requested to be alert in this regard to avert unnecessary harassment of customers". Here it may be mentioned that the savings instruments till then remained outside the purview of income tax other than deduction at source.

The timely and appropriate step taken by the NBR was just and right, and much appreciated by all concerned as it stood to protect citizens from undue encroachments by certain institutions on whose whims people were deprived from their due share. It was also in concordance with the natural law of justice, as government's covenant with its citizens cannot be altered adversely affecting the other party. Not to carry out governments obligations would have undermined its honour and prestige as well.

A similar situation has once more arisen. The PSPs that were purchased in the FY 1996-97 have matured, and we have received the promised profit. But then, the government tax officials are now demanding a substantial portion of the profit as income tax when such income was declared tax-exempt in our Income Tax Return of 2005-06. This tantamount to harassment, and a breach of promise that the government had previously made public through mass media. Even if government makes new rules and regulations, these cannot be done with retrospective effect adversely affecting thousands of innocent people who then purchased PSPs in good faith.

I, therefore, request the NBR to uphold its moral duty to comply with the commitments that the government had made earlier to the customers of savings instruments including PSPs. Necessary clear and unambiguous instructions may please be issued without delay to the officials of the tax department regarding income tax free interest on PSPs purchased on or before 10 June 1999. The instructions so issued may please also be published in the national dailies so that the investors also come to know about it.