KARACHI: Pakistan Banks’ Association (PBA) has forwarded set of proposals for annual budget 2018-2019 concerning banking sector to Federal Board of Revenue.
PBA has proposed that Section III (4) of Income Tax Ordinance 2001 should be deleted and PERA (1992) be amended, by excluding all persons resident in Pakistan and by disallowing deposit of cash dollars into foreign currency accounts of individuals with banks in Pakistan.
This will help curb rampant practice of whitening of money under umbrella of PERA.
The body also has recommended that tax rates for all sectors, including banks, be rationalised with uniformity. Accordingly, tax rates for banks should be reduced to 30 percent for tax year 2019, in line with corporate sector and advance tax payment should also be changed from monthly to quarterly for the banks.
PBA recommended that super tax be not extended for tax year 2019 and onwards in 2018-19 annual budget.
Currently, advance tax at rate of 0.6 percent (reduced to 0.4 percent through SROs) has been imposed on all non-filers, including those in vulnerable groups (like widows, pensioners, students, etc) who are not liable to pay tax where their income falls below taxable threshold.
The tax is also adversely affecting National Financial Inclusion Strategy. The PBA has recommended that tax should be removed or at least exemption should be provided to students, widows, pensioners, retirees etc.
Banks are required to pay advance tax installments on monthly basis. The banks incur heavy cost for these advance payments. For utilising a heavy amount as advance tax from banks every month, government should also pay KIBOR based compensation. On the income so paid by FBR, banks pay tax 35 percent presently, which will increase government revenue.
Through the amendment in Sales Tax Rules 2006, additional sales tax at 5 percent was imposed over and above sales tax of 17 percent on electricity and gas bills on unregistered persons. This additional sales tax should not be charged to a bank’s branch and exemption should be provided.
The audited financial statements of Islamic Banks and Islamic Windows of conventional banks contain a separate disclosure for Islamic Banking business, including a profits and loss statement. The requirement of separate auditors’ certificate for the purposes of rule 3(2) of Seventh Schedule has no relevance. If this is removed, it would save unnecessary cost and burden on the banks.
To encourage mobilisation of deposits for Micro Finance Banks, tax exemption for ‘Not for Profit’ organisations on profit on debt from scheduled banks, should also be applicable on profit on debt from MFBs.
For year ended December 31, 2017, banking sector paid total taxes of over Rs 139 billion and collected and paid to FBR withholding tax of about Rs 121 billion. Therefore, total contribution to exchequer from PBA members was over Rs 260 billion for that year.
The banking industry continues to play an integral role in economic development of country. It does this by supporting major initiatives of government, FBR and State Bank.
Published in Daily Times, April 5th 2018.