KARACHI - The Pakistan Banks’ Association (PBA), in its budget proposals for federal budget 2016-17, has recommended that Section III (4) of Income Tax Ordinance 2001 be deleted and Protection of Economic Reforms Act (PERA) (1992) amended by excluding all persons resident in Pakistan, as these sections provide immunity to a taxpayer on source of amount remitted from abroad in FX through banking channels. This will help curb the rampant practice of money whitening under the umbrella of PERA.
The PBA, which always played an active role by submitting constructive budget proposals, said the government has taken a very positive step by gradually reducing income tax rates for business income of the corporate sector from 35% to 34% for tax year 2014, to 33% for tax year 2015 and to 32% for tax year 2016. But since no such reduction has been provided to the banking sector, the PBA has recommended that tax rates for all sectors be rationalized with uniformity.
The PBA has recommended that Section 236 P of the Income Tax Ordinance concerning advance tax on banking transactions, other than through cash, be removed or exemption be provided to vulnerable groups. It has also asked the FBR that the threshold of transfers/transactions should be increased to Rs.100, 000.
The PBA has further recommended that unnecessary disclosures of customer information under Income Tax Ordinance 2001, sections 165 and 165 A, should be avoided & requirements under these two sections be dispended with & law amended.
This will help increase the financial inclusion in Pakistan.
The PBA has observed that the FBR, in violation of Constitutional provisions and Article 8 of the 7th NFC Award, is issuing notices to banks for levy of 16% FED on banking services, in addition to sales tax imposed by the respective provinces on the same services. As the matter has been lingering since 2011, it needs an amicable resolution, as levying of both taxes will unduly burden the citizens of Pakistan.
Through the amendment in Sales Tax Rules 2006, additional sales tax at the rate of 5 % was imposed, over and above the sales tax of 17% on electricity and gas bills, on unregistered persons. Banks are registered persons, but most of its branches are rented & utility connections are in name of the landlords. It is recommended that this additional sales tax should not be charged to a bank’s branch and exemption should be provided.
It has also been recommended by the PBA that the definition of the term ‘Supply’ in section 2 of the Sales Tax Act, 1990, should be amended to exclude all transactions under Islamic mode of financing from the ambit of Sales tax on goods. At present, only Murabaha transactions are excluded. The PBA says the banking sector stands ready to support the FBR in its efforts to expand the taxation and revenue base in a fair and equitable manner and that its recommendations, if incorporated in the forthcoming federal budget, would help in achieving that objective.