Pakistan Banks Association (PBA) has proposed reduction in tax rate on banks from 35 percent to 29 percent, reduced rate of minimum tax of one percent, withdrawal of super tax, compensation on monthly advance tax payment and uniformity in Federal Excise Duty/Sales Tax rates being charged and exemptions available under Federal/Provincial Laws.
According to the budget proposals of the PBA for 2020-21 submitted to the Ministry of Finance, banks are taxed at the rate of 35% of taxable income. Income Tax Ordinance requires 1.5% minimum tax for Banking Companies. Tax rate should be reduced to 29% making it in line with other industries.
Similarly, rate of minimum tax has been increased from 1% to 1.50% through the Finance Act, 2018 putting further burden on the taxpayer. It is therefore proposed that minimum tax rate be reduced back to 1% to provide some relief and support to those struggling businesses which have lower taxable income but are burdened with higher rates of minimum tax.
The PBA has proposed that the banks should be given KIBOR based compensation on utilization of banks' money in form of monthly advance tax.
The PBA proposed that the stay order granted by Appellate Tribunal Inland Revenue expires after 180 days even where the appeal is pending adjudication. Stay order granted by Appellate Tribunal to be valid till the time appeal is decided.
Presently, different rates of FED/Sales tax are being applied by FBR, PRA, SRB, KPRA and BRA for same type of services received in different territories. Furthermore, exemptions available under different laws are not uniform e.g. 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, PBA proposed.
Currently income tax rate of 29% is applicable on microfinance Banks. The rate of tax should be reduced to 20% since microfinance industry is supporting the poor and needy customers, providing micro loans for agriculture and livestock and also providing advances to Micro and Small enterprises.
Microfinance industry is also helping in furtherance of the goal of financial inclusion. Therefore, it is proposed that similar reduction in tax rate applicable to income from advances for micro, small and medium enterprises, be provided to MFBs under Chapter X of Part III (Tax Credits) of ITO 2001.
The PBA has also proposed that the capital loss on shares of listed companies if not adjusted in same year shall be carried forward for adjustment against capital gain. Capital Loss on shares of listed companies, irrespective of holding period shares, should be adjusted against business income in future years, if could not be set off in first year.
The PBA added that the advance tax is collected from banks on utility bills. Withholding tax provision should not apply on banks with respect to payment of electricity bills, telephone bills and mobile bills.
Banks already make payment of advance tax on a monthly basis, after deduction of any withholding tax paid / deducted at source. With this view, banks have been exempted from withholding tax deduction as a recipient of income. However, banks are still required to pay withholding tax on utility bills. Since banks make payment of advance tax on monthly basis, exemption should be provided from payment of tax on utility bills.
Different Rates of Withholding Tax deductions on Profit Payments up to 500,000/- and above 500,000/-. The uniform rate of Withholding Tax Deduction should be incorporated by removing slab of 500,000/- It will provide smooth and easy implementation and collection of tax without any difference of interpretation.
The PBA added that the capital loss on shares of listed companies if not adjusted in same year shall be carried forward for adjustment against capital gain. Capital Loss on shares of listed companies, irrespective of holding period shares, should be adjusted against business income in future years, if could not be set off in first year.