Additional advances to IT ITeS: 20pc concessionary tax rate on banks’ income proposed

KARACHI: The federal government has proposed concessionary tax rate for banks income from additional advances to Information Technology (IT) and Information Technology Enabled Services (ITeS).

Concessionary tax rate of 20 percent will be applicable on banking company’s income from additional advances to IT & ITeS sector instead of standard rate of 39 percent.

According to Finance Bill, government has proposed a reduced rate of tax on additional advances for Information Technology Services and Information Technology Enabled Services.

Budget proposals by PBA: FBR urged to gradually reduce tax rate for banks

The taxable income arising from additional advances for IT and IT Enabled Services in Pakistan for the tax years 2024 to 2025, shall be taxed at the rate of 20 percent instead of the rate provided in Division II of Part 1 of the First Schedule.

As per procedure, a banking company shall furnish a certificate from external auditor along with accounts while e-filing return of income certifying the amount of such advances made in preceding tax year, additional advance made for the tax year and net mark-up earned from such additional advances for the tax year.

Notwithstanding anything contained in this Ordinance, the Commissioner may require the banking company to furnish details of the advances made for IT and IT Enabled Services to determine the applicability of the reduced rate of tax.

“Additional advances” means any average advances disbursed in addition to average amount of such advances made in such sector by the bank for the immediately preceding tax year starting from 2023.

As per finance bill, the taxable income arising from additional advances under sub-rule (1) shall be determined according to the prescribed formula, namely: Taxable income subject to reduced rate of tax = A x B/C, Where, A. is taxable income of the banking company; B. is net mark-up income earned from such additional advances for the tax year as declared in the annual accounts; and C. is total of the net mark-up and non mark-up income of the banking company as per accounts.

In addition, the federal government has decided to grant extension for two years for the purpose of concessionary tax rate of 20 percent for banking company’s income from additional advances to low cost housing, agriculture, and SMEs.

As the government has already announced the concessionary tax rate of 20 percent for banking company’s income from additional advances to low cost housing, agriculture, and SMEs, now the banks will also required to pay 20 pc tax on additional advance to IT and ITeS for next two year.

Advance tax on cash withdrawal has also increased to 0.6 pc. Every banking company shall deduct advance adjustable tax at the rate of 0.6 percent of the cash withdrawal from a person whose name is not appearing in the active taxpayers’ list on the sum total of the payments for cash withdrawal in a day, exceeding fifty thousand rupees. For removal of doubt, it has clarified that the said fifty thousand rupees shall be aggregate cash withdrawals in a single day.

Copyright Business Recorder, 2023