KARACHI: The Federal Board of Revenue (FBR) has been asked to bring the corporate banking tax rate down to the same level as other sectors.
The Chamber of Commerce and Industry of Foreign Investors (OICCI) in its proposals for the 2022/2023 budget highlighted an increase in the effective tax of the banking sector.
He recommended that corporate tax rates in the banking sector be aligned with those in other sectors. The super tax relief, as given to other industries, should also be given to the banking sector.
The OICCI also pointed to the increased tax rate on income from investments in federal government securities (Rule 6C of the Seventh Schedule). He recommended that the banking sector is already burdened with higher tax rates compared to other service sectors. The additional tax applied under Rule 6C(6A) of the Seventh Schedule to the Income Tax Ordinance 2001 should be abolished, whereby an increased rate is applied to the Total Income Ratio (ADR ) banks.
Alternatively, the increased tax will be restored to the previous condition, i.e. additional tax will be applicable on additional income from additional investments in government securities rather than on total income.
The Overseas Chamber further recommended that the original provisions of the Seventh Schedule be reinstated where the allowance for bad debts in accordance with SBP’s prudential regulations and supported by a certificate from the auditors was allowed as a tax deduction for the banks.
Alternatively, the threshold for authorizing the provision for bad debts should be increased to 2% of gross advances to corporate clients without the categorization of loss, doubtful or substandard and remove the explanation inserted in the 2019 finance law with clauses 1 (d), (e) and (f).
Overriding provision of the Seventh Schedule of the Income Tax Ordinance 2001. Rule 9 of the ITO Seventh Schedule 2001 should be deleted as it is misused and leads to unnecessary litigation.
With regard to Islamic banks, the OICCI has stated that Rule 3 (1) and (2) of the Seventh Schedule to the Income Tax Ordinance 2001 should be replaced by the following under of Rule 3 (1):
“The audited financial statements of Islamic banks and the disclosure relating to Islamic counter operations of conventional banks as contained in the audited financial statements. the returns submitted to the State Bank of Pakistan form the basis for the calculation of income tax payable in accordance with this schedule. »
The OICCI underlined the withholding tax on all modes of Islamic financing and recommended ensuring the tax neutrality of assets financed by Islamic banks and the Islamic counters of conventional banks vis-à-vis conventional banks. The following clarification should be inserted after paragraph 153(7)(iii):
“For the avoidance of doubt, it is clarified that any property delivered under an Islamic mode 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 a sale of goods for the purpose of this section.