Banks to pay income tax on loan/deposit ratio basis

Shahnawaz AkhterWeb Editor

03rd Jul, 2021. 02:56 pm
FBR Announces 15% Holding Tax On Profits Of National Savings Schemes

KARACHI: The Federal Board of Revenue (FBR) will collect income tax on the basis of advance-to-deposit ratio from banks on making investment in government securities, official sources said on Saturday.

The sources in the revenue board said a relief had been provided to the banks in discharging liabilities on making profit from the investment made in the government securities.

Through the Finance Act, 2021 amendments have been made in the Income Tax Ordinance, 2001 to provide relief.

The banks are subject to pay 37.5 per cent as income tax on the profits made from investment in the government securities since an amendment was made through the Finance Act, 2019.

However, this amendment created unrest among the banking companies due to difficulties in the calculation and higher tax rate. The banks are already subject to 35 per cent corporate tax rate, which is higher than the leviable rate on the other corporate entities.

The Federal Board of Revenue said for the tax year 2022 and onwards, the income arising from the federal government securities would be taxable on the basis of advances-to-deposit ratios of banks; 40 per cent of the tax rate would be levied, if the advances-to-deposit ratio on the last day of the tax year is up to 40 per cent.

Likewise, 37.5 per cent tax rate would be levied, if the advances-to-deposit ratio on the last day of the tax year exceeds 40 per cent but does not exceed 50 per cent.

Similarly, the tax rate available in the ordinance would remain the same, if advances-to-deposit ratio on the last day of the tax year exceeds 50 per cent.

The revenue board said the amendments would reduce disputes regarding the calculation of additional investment and additional earnings.

Further, the cutoff rate to calculate advances-to-deposit ratio has been specified as the last day of the tax year.

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