Banks demand reduction in tax rate
ISLAMABAD: In its proposals for the upcoming federal budget, the Pakistan Banks’ Association (PBA) demanded that the government should reduce the tax rate to 30 per cent for 2017-18.
The budget proposals, submitted to the Federal Board of Revenue (FBR), called upon the government to make the tax rate uniform and equitable for the banking sector. They highlighted that the tax rate on capital gains and dividend income of banks has been raised to a uniform rate of 35pc from tax year 2015.
The PBA has said the banking sector is one of the largest contributors to the national exchequer. In the year ended Dec 31, 2016, it paid total taxes of over Rs140 billion and collected and paid to the FBR over Rs134bn as withholding tax.
Therefore, the total contribution to the exchequer from members of the PBA was over Rs274bn.
The PBA’s key recommendations for the upcoming budget include the deletion of Section III (4) of ITO 2001 and amendment of Pakistan Economic Reform Act (PERA) 1992 by excluding all persons resident in Pakistan, as this section presently provides immunity to a taxpayer on the source of an amount that has been remitted from outside Pakistan in foreign exchange through the banking channels.
In PBA’s view, the provisions are often misused as some businessmen may remit undeclared income through unofficial channels, which is then brought into Pakistan in foreign exchange through banking channels.
While no taxes are paid on such undeclared income, it can be laundered into white money at a small cost of 3-4pc. This will help curb the practice of money whitening under the umbrella of PERA.
The PBA also proposed that a new sub-rule should be added to Rule (3) of the seventh schedule, specifically mentioning musharakah, modaraba, murabaha (including commodity murabaha), musawama, ijarah, istisna and salam and any other Shariah-compliant transaction as a financing transaction and not as trading activity that is a sale/purchase transaction. A similar amendment is also required in Sales Tax Act 1990.