KARACHI: The Pakistan Banks’ Association (PBA) demanded on Tuesday that the income tax rate for banking institutions be “rationalised with uniformity” in the upcoming federal budget for 2016-17.
As part of their budget proposals, the PBA demanded that the income tax rate for banks should be brought down to 32%, which is the rate the corporate sector pays on its business income.
While the government had reduced the income tax rate for the corporate sector from 35% to 34% in 2013-14 and to 33% in 2014-15 and 32% in 2015-16, it did not decrease the same for banking institutions.
“The government has taken a very positive step by gradually reducing income tax rates for business income of the corporate sector… But since no such reduction has been provided to the banking sector, the PBA has recommended that tax rates for all sectors be rationalised with uniformity,” PBA said in a statement.
It also recommended that Section III (4) of Income Tax Ordinance 2001 be deleted and Protection of Economic Reforms Act (PERA) (1992) be amended by excluding all persons residing in Pakistan. “These sections provide immunity to a taxpayer on (declaring) the source of an amount remitted from abroad in foreign exchange through banking channels. This will help curb the rampant practice of money whitening under the umbrella of PERA,” it said.
The PBA recommended that Section 236 P of the Income Tax Ordinance concerning advance tax on banking transactions, other than through cash, be removed or exemption be provided to vulnerable groups. It has also asked the Federal Board of Revenue (FBR) that the threshold of transfers/transactions should be increased to Rs100,000.
The PBA has further recommended that unnecessary disclosures of customer information under Income Tax Ordinance, 2001, Sections 165 and 165 A, should be avoided. This will help increase financial inclusion in Pakistan, it said.
The PBA observed that the FBR, in violation of constitutional provisions and the 7th NFC Award, was issuing notices to banks for the levy of 16% Federal Excise Duty (FED) on banking services in addition to the sales tax imposed by the respective provinces on the same services. The matter has been lingering since 2011 and needs an amicable resolution, it said, as levying of both taxes will unduly burden the citizens of Pakistan.
Through the amendment to Sales Tax Rules 2006, an additional sales tax at the rate of 5% was imposed, over and above the sales tax of 17% on electricity and gas bills, on unregistered persons. Banks are registered persons, but most of its branches are rented and utility connections are in the name of the landlords. The PBA recommends that this additional sales tax should not be charged to a bank’s branch and exemption should be provided.
Published in The Express Tribune, April 6th, 2016.
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