KARACHI: Federal Board of Revenue (FBR) has been proposed to bring down the corporate tax rate for banks at par with other corporate sector and also treatment of super tax for banking companies aligned with other taxpayers.
The banks are paying 35 percent income tax whereas the corporate tax rate for other sectors is 29 percent. Likewise, super tax at four percent is applicable on banks.
Overseas Investors Chamber of Commerce and Industry (OICCI) in its budget proposals for 2020/2021 submitted to the FBR, highlighted that the banking sector tax rates are not aligned with the general corporate tax rates.
Furthermore, through Finance Supplementary (Second Amendment) Bill 2019, Super Tax at 4 percent is made applicable on banks from tax year 2018 to tax year 2021.
The OICCI recommended that corporate tax rates for the banking sector should be aligned with other sectors.
Meanwhile, super tax relief, as granted to other industries, should be given to banking sector as well.
The OICCI also highlighted tax deduction on profit on debt under section 151 of Income Tax Ordinance, 2001.
Through Circular No.1/2-STB/2019 dated 26th July 2019, FBR has clarified that withholding tax under section 151 shall be deducted on the basis of cumulative profit paid in a tax year.
The circular is in contradiction with the Act, which requires that withholding tax shall be deducted on payment basis.
The circular should be withdrawn, to avoid litigation between banks and department.
There should be a uniform withholding tax rate of 15 percent for all payments of profit on debt.
The OICCI pointed out Section 165 and 165A of Income Tax Ordinance 2001related to submission of statements and information by the banks.
The Clause (81A) of Part IV to the Second Schedule was inserted vide the Finance (Second Amendment) Act 2019 to exclude the reporting requirements under section 165 of Income Tax Ordinance, 2001 with respect to withholding tax under section 151 (Profit on Debt) and 231A (Cash Withdrawal) since both the withholding sections are required to be reported under section 165A.
The clause was abolished vide Finance Act 2019, resulting in duplication of reporting i.e. withholding tax under section 151 and 231A has to be reported, with a threshold, under section 165A on monthly basis and again under section 165 on bi-annual basis, but without any threshold i.e., withholding tax of even Re 1 has to be reported under section 165A.
Therefore, the OICCI recommended that Clause (81A) of Part IV to the Second Schedule should be restored to avoid duplication of reporting and handling of voluminous data for immaterial withholding tax transactions, which is not clear.
Alternatively, reporting requirement of section 165A for both these sections (151 and 231A) should be deleted to avoid double reporting.
