KARACHI: Pakistan Banks Association (PBA) has urged the Federal Board of Revenue not to impose any additional or new tax on the banking sector in the next budget as the sector is already overburdened.
Chief Executive Officer, Pakistan Banks Association (PBA), Tawfiq Hussain has said the banking sector is playing a vital role in the economic development of the country and is supporting major initiatives of the government, the Federal Board of Revenue (FBR) and the State Bank of Pakistan (SBP). The banking sector played a pivotal role, as executing agents, in supporting the government and SBP’s interventions to respond to challenges like the Covid-19 pandemic.
It is also one of the largest contributors to the national exchequer and should therefore be treated equitably. For the year ended Dec 31, 2021, the banking sector paid total taxes of about Rs 178 billion to the national exchequer. The sector collected and paid to the FBR, withholding tax of over Rs 162 billion. In 2021, the total contribution to the national exchequer from the members of PBA was over Rs 340 billion, he informed.
Budget FY23: PBA seeks 29pc uniform tax rate
PBA understands that levying additional taxes on the banking sector may presently be under consideration of the FBR and the federal government through the Finance Bill 2023.
“If this was true, it would be grossly inequitable, as it would further widen the gap of taxes on the banking sector as compared to other sectors and make the discriminatory tax treatment for banks even more pronounced. It would also send a negative signal to all stakeholders of banks, especially their investors,” the CEO PBA said.
PBA has strongly recommended the FBR and the government not to impose any additional or new tax or levy on the already overburdened banking sector, which is fully documented and pays the all taxes imposed on it.
Regarding business income of the corporate sector, the PBA CEO said the government had taken a very positive step by progressively reducing its income tax rates, starting from 35 percent to 34 percent for tax year 2014 and to 29 percent for tax year 2019 onwards. However, unfortunately no such reduction has been provided for the banking sector, he mentioned.
Tawfiq said that the tax rate of 35 percent for banks is not only one of the highest in the region, but is also very high when compared to other business sectors in Pakistan, including the financial service sector, like mutual funds, DFIs, leasing companies, insurance companies, etc. since they are taxable at 29 percent tax rate.
“PBA believes that in order to provide a level playing field, banks should also be taxed at a uniform tax rate of 29 percent, as was applicable to other sectors of the economy,” he added.
He has also brought into focus the payment of Super Tax by banks. He informed that Super Tax was introduced in tax year 2015 at the rate of 4 percent for banks and 3 percent for entities other than banking companies which had an income of Rs 500 million or more.
It was only a one-time levy to cater to specific needs “of rehabilitation of temporarily displaced persons”. However, it was extended each year for both banking and non-banking sectors. It was then abolished for the non-banking sector in tax year 2020, but was made a permanent feature for the banking sector with the promulgation of the Tax Laws (Amendment) Ordinance 2021, he added.
“In the banking sector’s view, Super Tax on it is discriminatory, as not only was the rate initially 1 percent higher for the banking sector as compared to the non-banking sectors, but now, with the recent amendment, only the banking sector had been singled out for levy of Super Tax,” the CEO PBA maintained.
He said this means all other sectors of the economy, including financial institutions and insurance companies, have been exempted from Super Tax. PBA strongly believes that since Super Tax at 4 percent for banking sector is discriminatory, it should be abolished.
Tawfiq informed the banking sector’s absolute post-tax profit of Rs 264 billion for the financial year ended Dec 31, 2021, appears to be large, in comparison to other sectors. The total equity of banks of Rs 1.94 trillion, as of Dec 31, 2021, was also much larger than that of other sectors as this sector requires a very large capital base to meet the regulatory requirements.
In addition, the return on equity of the banking sector at 14 percent, as of Dec 31, 2021, was healthy, but in no way excessive compared to other sectors. The return on equity for the banking sector is actually on a declining trend.
Copyright Business Recorder, 2022