While the banking circles are preparing proposals, including reducing current rate of taxation from 35 percent as promised by the government to attract huge foreign investment in this sector, the proposal of increasing tax rates has dismayed banking experts.
Experts warned that an increase in tax rate on banks will have negative impact which would hamper the future of banking industry. "The planners should realise that increasing the tax rates will have negative impact on the banking industry and on future investment in the country as it spreads so much uncertainty about future government policies", said senior economist Naveed Anwar Khan FCA.
He said that it is a tribute to the prudent management of banking sector that they have remained vibrant despite regular increase in non-performing loans due to acute recession in the country. He said that a reward for their prudence government should allow actual provisioning for the year, provided the provisioning is less than one percent, five percent as the case may be of total advances.
A chartered accountant Faisal Qamar said that since the amount of bad debts classified as substandard, under prudential regulations issued by State Bank of Pakistan, shall not be allowed, it is good for the banking industry if this amount is allowed an expense. He said that substandard category is timing difference and in the subsequent period, it will change its character.
He said that currently, amount provided for tax year 2008 and prior to the said tax year, for or against irrevocable or doubtful advance, were neither claimed nor allowed as tax deductible in any tax year. Such advances are actually written off against such provisions in accordance with the provision of section 29 and 29A. Through finance bill 2011-12, an amendment requires change in order to avoid misinterpretation and ambiguity stating by allowing deductible deduction in the tax year when there is reasonable ground to believe that the debt is irrecoverable.
He said that through Finance Act 2010, rate of minimum tax was enhanced from 0.5 percent to one percent of turnover of the bank. This increase further burdens the banks which are already in losses due to increase in non-performing advances, therefore, it proposed that previous minimum tax rate of 0.5 percent should be brought. A Canada-based certified public accountant Asif Ali Shahid said it would be a folly to disturb the only vibrant sector of the economy by raising tax rates.
He said that this would marginalize smaller banks and increase the share of larger banks that have been losing market share for the last five years. Instead, he said that the government should correct an anomaly under which banks are required to pay advance tax on monthly basis on or before 15th of every month. In this regard, banks incur heavy cost for such advances. He said that the banks should be given KIBOR based compensation on utilisation of bank's money in the form of monthly advance tax.-PR