In a move to bolster revenues and streamline the tax structure, the Pakistani government has increased the super tax rate for banking companies to 4 percent until the tax year 2021.
The adjustment, outlined in the Finance Supplementary (Second Amendment) Bill of 2019, comes into effect for the tax year 2018 as well, as per the provisions of the bill presented on January 23, 2019.
Previously, the rates of super tax for banking companies were staggered at zero percent, four percent, three percent, and two percent for tax years 2018, 2019, 2020, and 2021, respectively. However, the Finance Supplementary Bill has amended the Second Schedule of the Income Tax Ordinance of 2001 to standardize the rate at 4 percent for banking companies until the tax year 2021.
The super tax, introduced through the Finance Act of 2015, was initially designated for the rehabilitation of temporarily displaced persons under Section 4B of the Income Tax Ordinance of 2001. This section outlines the scope and parameters of the super tax:
Section 4B: Super Tax for Rehabilitation of Temporarily Displaced Persons
Sub-Section (1): A super tax shall be imposed for the rehabilitation of temporarily displaced persons, for tax years 2015 to 2020, at the rates specified in Division IIA of Part I of the First Schedule, on the income of every person specified in the said Division.
Sub-Section (2): For the purposes of this section, “income” shall be the sum of profit on debt, dividend, capital gains, brokerage, and commission; taxable income under section 9 of this Ordinance; imputable income as defined in clause (28A) of section 2 excluding certain amounts; and income computed under Fourth, Fifth, Seventh, and Eighth Schedules.
Sub-Section (3): The super tax payable under sub-section (1) shall be paid, collected, and deposited as specified in sub-section (1) of section 137, and all provisions of Chapter X of the Ordinance shall apply.
Sub-Section (4): Where the super tax is not paid, the Commissioner may determine the super tax payable and issue a notice of demand.
Sub-Section (5): If the super tax is not paid, the Commissioner shall recover it, applying the relevant provisions of the Ordinance.
Sub-Section (6): The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section.
The recent amendment, focusing on banking companies, aligns with the government’s efforts to create a fair and consistent tax environment. While the move aims to enhance revenue collection, it may also have implications for the banking sector, prompting stakeholders to evaluate its impact on financial strategies and profitability.
As the Finance Supplementary (Second Amendment) Bill progresses through the legislative process, industry experts and financial institutions will closely monitor its effects, analyzing how the changes in super tax rates influence the broader economic landscape and the banking sector’s role in Pakistan’s fiscal framework.
