Changes in banking sector’s ADR: Cabinet approves promulgation of tax ordinance

ISLAMABAD: The federal cabinet has granted approval to promulgation of an Income Tax Ordinance for bringing changes in Advance Deposit Ratio (ADR) of banks with expectation to generate an additional Rs 70-75 billion by end of December 2024.

Sources confirmed that the federal cabinet has granted its approval to promulgation of an ordinance on Income Tax, but the President has not yet signed the Ordinance. President’s nod is awaited to promulgate the said ordinance, they added.

Under the proposed arrangement, the calculation of profits of banks on account of ADRs may be replaced from ratios to fixed maximum slab. The banking sector rate has been proposed to be raised from 39 percent to 44 percent under the agreed formula. Banking sector is expected to pay a tax amount of around Rs75 billion to the exchequer.

Banking sector’s ADR climbs to nearly 48% as of Nov 29

Now instead of these different slabs, the ADR may be settled from corporate sector rate of 39 percent to 44 percent on the profits derived through advances into government securities by the banking sector.

Prime Minister Shehbaz Sharif had constituted a high-powered committee under the convenorship of Deputy Prime Minister Ishaq Dar to explore possibilities to bring profits of banks accrued from investment in government securities.

The committee was comprised of Deputy Prime Minister, Minister for Finance & Revenue, Law Minister, Minister of State for Finance & Revenue, Attorney General of Pakistan, Finance Secretary, Chairman FBR, Governor State Bank of Pakistan and Asma Hamid.

The Terms of Reference (ToRs) of the committee included to review the existing legal framework of fiscal measures related to ADRs of banking sector, to deliberate on alternate fiscal schemes to tax bank profits accrued from investment in government securities, to engage with banking sector developing a consensus on way forward, if possible.

The TORs further included firm up recommendations for an optimum solution ensuring realization of government revenues by December 31, 2024 and suggest non-fiscal regulatory measures for increasing advances to private sector.

Copyright Business Recorder, 2024