Daily Times

In order to facilitate banking companies on payment of additional tax on earnings arising from investment in government securities, the Federal Board of Revenue (FBR) has introduced a new regime.

The FBR said that the income of banking companies earned from additional investment in the federal government securities for tax year 2020 and onwards was taxable at the rate of 37.5 percent instead of rates provided in Division II of Part I of the First Schedule. This provision has been further streamlined for prospective application.

For the tax year 2022 and onwards, the income arising from federal government securities shall be taxable on the basis of advances to deposit ratios of banks as under: (a) 40 percent instead of rate provided in Division II of Part I of the First schedule if advances to deposit ratio as on last day of the tax year is up to 40 percent; (b) 37.5 percent instead of rate provided in Division II of Part I of the First schedule if the advances to deposit ratio as on last day of the tax year exceed 40 percent but do not exceed 50 percent; (c) and at the rates provided in Division II of Part I of the First schedule if advances to deposit ratio as on last day of the tax year exceed 50 percent.

The FBR said the amendments would reduce disputes regarding the calculation of additional investment and additional earnings. Furthermore, the cut off rate to calculate advances to deposit ratio has been specified as the last day of tax year. These changes have been incorporated by amending Rule 6C of the Seventh Schedule, said the FBR.