FBR considers incentive withdrawal on foreign loans

KARACHI: The Federal Board of Revenue (FBR) is considering to withdraw an incentive allowed to banks on advances through their foreign branches.

Sources in Large Taxpayers Unit (LTU) Karachi on Wednesday said that banks have been allowed losses of one percent against total advances given during a year. The banks, however, are misusing the facility by claiming huge advances to their foreign clients through branches outside Pakistan.

The sources said the unit had informed the FBR that the domestic banks were claiming losses and making large provisions in respect of their foreign branches. The unit also demanded the FBR that the assessing officers should be given authority to examine such issues and act accordingly.

“The banks are not providing break up of advances and provisions under separate heads of domestic and foreign loans. Therefore, tax department has no other option but to accept the given figures as reliable,” the unit informed the FBR.

The sources said that as per an estimate, loans that banks are giving abroad are around 20 percent of their total advances.

“The withdrawal of the incentive will help the FBR to generate substantial revenue from banking companies,” said an official at the LTU Karachi.

The FBR allowed incentives to banks to show one percent of total advances as expenses in their financial accounts to reduce the tax liability. However, the provision is five percent in case advances are given to small and medium enterprises (SMEs). Under the Seventh Schedule of Income Tax Ordinance, 2001, the incentive is available with the condition that the banking company provides a declaration to the external auditor that the provisions are based upon the prudential regulations issued by the State Bank of Pakistan (SBP). The FBR has also been advised to amend the schedule and directed banks to provide the amount in rupees for advances and provisions separately for consumers and SMEs. According to the SBP, the total advances of schedule banks reached Rs6,628 billion by March 2018, showing an increase of 21 percent when compared with the stock of Rs5,477 billion in the same month of the last year. The FBR sources said that advance profile of the banks showed the quantum of the tax relief availed by the banks.