Bankers call for withdrawal of tax immunity scheme

KARACHI: A bankers’ body on Tuesday urged the government to abolish a tax immunity scheme, which gives cover to the people from not disclosing their sources of foreign earnings. 

The Pakistan Banks’ Association (PBA), in its budget proposals for the budget of 2016/17 fiscal year, asked the government to delete section III (4) of the Income Tax Ordinance 2001. 

The section provides immunity to a taxpayer from disclosing the source of amount remitted from abroad in foreign exchange through banking channels.

The association further asked the government to amend the Protection of Economic Reforms Act 1992 by excluding ‘all persons resident in Pakistan’.

The PBA appreciated the government’s decision to cut corporate income tax rates from 35 percent to 34 percent for the tax year 2014, to 33 percent for tax year 2015 and to 32 percent for tax year 2016.

“But, since no such reduction has been provided to the banking sector, the tax rates should be uniform for all sectors,” it said.

The PBA, representing the country’s banking industry, said Section 236 P of the Income Tax Ordinance, related to advance tax on non-cash banking transactions, should be removed, “or exemption be provided to vulnerable groups.”

“The threshold of transactions should be increased to Rs100,000 (from the current Rs50,000),” it said.

The association said the unnecessary disclosures of customer information under sections 165 and 165 A of the Income Tax Ordinance 2001 should be avoided. “This will help increase the financial inclusion in Pakistan,” it added.

The PBA said the Federal Board of Revenue (FBR), “in violation of constitutional provisions and Article 8 of the 7th NFC (National Finance Commission) Award,” is issuing notices to banks to levy 16 percent federal excise duty on banking services, in addition to sales tax imposed by the respective provinces on the same services. “The matter has been lingering since 2011. It needs an amicable resolution, as levying of both the taxes will unduly burden the citizens of Pakistan,” it said.

The PBA said a bank’s branch should be exempted from an additional sales tax of five percent on utility bills. The FBR slaps this tax in addition to 17 percent sales tax on electricity and gas bills of unregistered persons. Banks are registered, but most of their branches are on rent and utility connections are in name of the landlords.

The PBA further said the definition of the term ‘Supply’ in section 2 of the Sales Tax Act, 1990, should be amended to exclude all the transactions under Islamic mode of financing from the ambit of Sales tax on goods. At present, only Murabaha transactions are excluded.

“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,” it said, adding that its recommendations, if incorporated in the federal budget, will help in achieving the objective.