• Report: Muhammad Umair Zeb~Finance and Tax Analyst

Tax Expert Muhammad Umair Zeb has said that the Federal Board of Revenue (FBR) has been urged to bring corporate tax rate for banking companies at par with the other sectors. Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2022/2023 pointed out towards higher effective tax of banking sector.It recommended that corporate tax rates for the banking sector should be aligned with other sectors. Super Tax relief, as granted to other industries, should be given to banking sector as well.The OICCI also pointed out enhanced rate of tax on income from investment in Federal Government Securities (Rule 6C of Seventh Schedule). It recommended that the banking sector is already burden with higher tax rates as compared to other service sectors. Incremental tax applied under Rule 6C (6A) of seventh schedule of Income Tax Ordinance, 2001 should be deleted, whereby enhanced rate is applied on banks total income ratio (ADR).Alternatively, enhanced tax shall be reverted to the previous condition, i.e. incremental tax shall be applicable on Additional income from additional investment in government securities rather than total income.The overseas chamber further recommended the original provisions of the Seventh Schedule should be restored where provision for bad debts as per the Prudential Regulations of SBP and supported by an Auditors certificate was allowable as a tax deduction to the banks.Alternatively, threshold for allowing provision for bad debts should be increased to 2 per cent of gross advances to corporate customers without the categorization of loss, doubtful or substandard and delete the Explanation inserted through Finance Act, 2019 along with the Clauses 1(d), (e) and (f).Overriding Provision in Seventh Schedule to Income Tax Ordinance, 2001. The rule 9 of the Seventh Schedule of ITO 2001 should be deleted as it is being misused and leading to unnecessary litigation.Regarding Islamic banks, the OICCI said Rule 3 (1) & (2) of Seventh Schedule of Income Tax Ordinance, 2001 should be replaced with the following text under Rule 3(1):“The audited financial statements of Islamic Banks and Disclosure related to Islamic window operations of the conventional banks as contained in the audited financial statements submitted to the State Bank of Pakistan shall form the basis for the calculation of income tax liability as provided in this Schedule.”The OICCI pointed out withholding tax on all modes of Islamic financing and recommended that tTo provide tax neutrality for assets financed by Islamic banks and Islamic windows of conventional vis- a vis conventional banks. Following clarification be inserted after clause 153(7)(iii):“For the removal of doubt, it is clarified that any goods delivered under an Islamic modes of financing by a bank or financial institution approved by the State Bank of Pakistan or the Securities Exchange Commission of Pakistan, shall not be considered as sale of goods for the purpose of this section.”

Leave a Reply

Your email address will not be published.

Translate »