Seventh schedule of IT ordinance, 2001: PBA proposes comprehensive amendments

Pakistan Banks' Association (PBA) has proposed comprehensive amendments in the Seventh Schedule (Banking Schedule) of Income Tax Ordinance, 2001 through Finance Bill 2018. It is learnt that the budget proposals of the PBA for 2018-19 has proposed several changes in seventh schedule of income tax ordinance, 2001. The provisions for advances and off balance sheet items shall be allowed up to a maximum of 1% of total advances and provisions for advances and off-balance sheet items shall be allowed at 5% of total advances for consumers and small and medium enterprises (SMEs).
An explanation should be inserted in Rule 1(c) of the Seventh Schedule that total advances means 'Gross Advances' before excluding the provisions for Bad & Doubtful Debts, the PBA said.
The rationale for proposal is that the provision has been misconstrued by the tax authorities, just to increase the tax collections. Tax office is interpreting total advances as 'Net Advances' shown on the face of the balance sheet.
This is now being allowed to the banks in appeals. As such, it is unnecessarily creating refund cases for the FBR as well as for banks. The compensation on monthly advance tax payment is related to the Rule 5(1) of Seventh Schedule. Banks should be given KIBOR based compensation on utilization of banks' money in form of monthly advance tax, it proposed.
The banks incur heavy cost for such kind of advance payments on monthly bases. For example advance tax monthly installment paid in January 2009 (Tax year 2010), credit shall be given at the time of filing return in September 2010. Banks can invest these funds to earn considerable yields, which in turn will be subject to tax and thus FBR will also benefit. If FBR insists on monthly payment of advance tax, then compensation on the basis of Karachi Inter Bank Offered Rate (KIBOR) should be given for utilizing the money [up to assessment year 1997-98, Department used to pay 6% compensation on such funds].
For computation of tax liability, adjustments can only be made under Rule 1(a) to 1(h) and beyond that no addition can be made. Under cover of Rule 9, tax officers make adjustments beyond scope of 7th Schedule, which negates very purpose of 7th Schedule and it seems 7th schedule in not in existence.
Such rule does not exist in schedule for insurance companies; therefore, it is a discriminatory treatment with banks.
The PBA has proposed that there is a lack of uniformity in FED/Sales Tax Rates & Exemptions. Presently, different rates of FED/Sales tax are being applied by the FBR, the PRA, SRB, KPRA and BRA for same type of services received in different territories. Furthermore, exemptions available under different laws are not uniform eg a customer is enjoying exemption on same services in one territory while, the same are made taxable in other territory.
Uniformity should be brought in FED/Sales Tax rates being charged and exemptions available under Federal/ Provincial Laws. Lack of uniformity in tax rates and exemptions is creating reconciliation problems for customers, the PBA added.