ISLAMABAD (November 15 2006): To promote Islamic banking in the country, the National Bank of Pakistan (NBP) has approached the Central Board of Revenue (CBR) for obtaining income tax exemption on all Islamic modes of banking transactions.

It is learnt that a delegation of NBP officials held a meeting with CBR officials to give a presentation on the exemptions demanded on Islamic transactions under various provisions of Income Tax Ordinance 2001. The NBP delegation was headed by Anwar Ahmed and CBR side was represented by CBR Member Direct Taxes Salman Nabi.

The NBP officials asked the Board to make all Islamic transactions tax-free. Presently, Islamic banking is exempted from minimum 0.5 percent turnover tax under Income Tax Ordinance 2001. They said that income tax exemption should be extended to the entire Islamic transactions.

In this connection, the NBP proposed that all types of income generated through Islamic mode of transactions should also be exempted from payment of tax under the Ordinance 2001.

Sources said that it was a preliminary meeting to discuss the viewpoint of NBP on the issue of Islamic transactions. Islamic banking is fast coming up in Pakistan. In conventional banking, minimum tax ie 0.5 percent was applicable on the interest income only as this falls under the definition of 'turnover'.

Whereas in case of Murabaha, the applicability of minimum tax ie 0.5 percent is on total amount of resale (cost plus profit) as the Islamic bank will be recording the sales revenue in their books which will be treated as their turnover.

For the removal of this anomaly and to ensure that Islamic banking is not at a disadvantage viz-a-viz normal banking, minimum tax @ 0.5 percent on Murabaha turnover was withdrawn in last budget, sources added.

Copyright Business Recorder, 2006