ISLAMABAD: The Federal Board of Revenue (FBR) is seriously considering the banking sector’s budget proposals (2021-22), including a reduction in the corporate tax rate from 35 percent to 29 percent, a minimum tax of 1.5 percent to one percent, and monthly compensation prepayment Tax.
According to the budget proposals submitted by the Pakistan Banks’ Association (PBA) to the Ministry of Finance, the Finance Act 2018 raised the minimum tax rate from one percent to 1.5 percent, which puts an additional burden on taxpayers, including banks.
It is therefore proposed to lower the minimum tax rate to one percent.
This would provide some relief and support to companies in trouble, including banks that are burdened with less or zero profitability and an inappropriately higher tax burden.
The PBA has also proposed to the government that companies, particularly banking firms, receive incentives in the form of tax credits when investing in IT infrastructure or human capital development.
The banking sector has proposed to grant banks KIBOR-based compensation for the use of bank funds in the form of a monthly advance tax.
Banks incur a high cost of monthly prepayments compared to quarterly payments from companies other than banks.
The PBA has proposed lowering the corporate tax rate to 29 percent to align with the other industries, and the super tax should be abolished.
The banking sector has proposed to the FBR that the current income tax rate of 29 percent apply to microfinance banks. The tax rate is to be reduced to 20 percent, as the microfinance industry supports poor and needy customers with microcredits for agriculture and animal husbandry and also grants advances to micro and small businesses.
Regarding the Active Taxpayers’ List (ATL), the banking industry has suggested that the ATL is currently updated by the FBR weekly on Mondays, which is effective immediately and does not give banks time to implement. The ATL should be updated every Thursday or Friday and take effect from next Monday to give banks enough time to implement into the system after the necessary format changes have been made.
The law should also be amended accordingly to effect the aforementioned change, added the PBA.
The PBA has also proposed to abolish the limit on tax depreciation to 50 percent of taxable operating income.
The declarations of retention required under Section 165 EStV 2001 must be submitted within 20 days of the end of the quarter. The deadlines for submitting these withholding tax returns should be extended to two months from the end of each reporting quarter, the PBA added.
According to current law, the capital loss from shares in listed companies, if it is not adjusted in the same year, can be carried forward, but adjusted with the capital gains of the following year.
It has been suggested that capital loss on shares in publicly traded companies, regardless of how long the shares were held, should be settled with business income in future years if they couldn’t be offset in the first year, the PBA added.
Copyright Business Recorder, 2021