PESHAWAR: A tax expert belonging to Khyber Pakhtunkhwa, Muhammad Umair Zeb, has said the Federal Board of Revenue (FBR), despite receiving a clear budget proposal from the banking sector to abolish the super tax, may increase its rate in the federal budget for 2022-23.
Speaking at an online meeting, Umair Zeb said the Ministry of Finance has directed the FBR to review the major budget proposals of the banking sector. The FBR officials concerned are analysing each proposal of the sector in view of its impact on revenue and other issues involved.
The sector’s proposal pertaining to super tax revealed that the tax was introduced in the tax year 2015 at 4 percent for banks and at 3 percent for persons other than banking companies having an income of Rs 500 million or more.
It was supposed to be a one-time levy to cater to the specific needs of the temporarily displaced persons. However, it was extended each year for both banking and non-banking sectors until it was abolished for the non-banking sectors in the tax year 2020.
Now the super tax at 4 percent has been made a permanent feature for the banking sector with the promulgation of the Tax Laws (Amendment) Ordinance 2021.
Taking part in the deliberations at the online meeting, Umair Zeb, who is a member of the tax bar association of Peshawar, said that super tax is discriminatory in nature because not only is its rate one percent higher for the banking sector as compared to the non-banking sectors, but through the recent amendment the banking sector has been singled out for its levy.
In other words, all the other sectors of the economy, including financial institutions and insurance companies, have been exempted from the tax. It has, therefore, been proposed by the banking sector that super tax for banks, being discriminatory, should be abolished.
The perusal of the budget proposals also revealed that for the year ended Dec 31, 2021, the banking sector paid total taxes of about Rs 178 billion and collected, and paid to the FBR, a withholding tax of over Rs 162 billion. Therefore, the total contribution of the banks to the exchequer stood at over Rs 340 billion for that year.
According to Umair Zeb, the banking industry also pointed out that the tax rate of 35 percent for banks is not only one of the highest in the region but also very high when compared to other business sectors in the country, including the financial services sector, which is taxable at a rate of 29 percent.
Responding to the proposals of the banking sector, officials disclosed that the sector is paying super tax at the rate of 4 percent. And a proposal is indeed being studied to increase the rate of the super tax on banks.
A raise in the rate of super tax on banks would have a positive impact on the overall direct taxes collection during 2022-23, according to analysts.
Copyright Business Recorder, 2022