The Pakistan Banks’ Association (PBA) has congratulated the government on presenting a growth oriented budget, with special emphasis on growing two important sectors, i.e. agriculture and exports, but said that the government, unfortunately, has overlooked the needs of the important sector of banking.
In a press release, the PBA has expressed its disappointment that the Federal Board of Revenue has overlooked its recommendations for the Federal Budget 2016-17 for the banking sector despite the fact that this sector cumulatively pays some of the highest amounts of taxes to the national exchequer. Banks paid total taxes of Rs 121 billion during the year ended December, 2015. In addition, withholding tax of Rs 105 billion was collected and paid to the FBR for the year ended December, 2015.
The PBA has said that the one-time imposition of super tax on the banks’ tax income for 2015 has been re-imposed again at 4 per cent for banks and 3 per cent for other tax payers. Also, by disallowing depreciation and business losses that are brought forward, the effective tax rate has further gone up.
The PBA says that while the government has taken a positive step by reducing income tax rate for business income of the corporate sector from 33 per cent to 32 per cent for tax year 2016 and further down to 31 per cent for tax year 2017, unfortunately, the income tax rate for banks has still not been rationalised and continues to be levied at the higher rate of 35 per cent. This anomaly needs to be immediately corrected. The PBA has said that the advance tax installment payment interval has also been retained on a monthly basis for banks while it is quarterly for other sectors.
With respect to advance tax on banking transactions other than through cash, the PBA says that vulnerable groups, including widows, pensioners, retirees and students will be receiving very low compensation which will fall below the taxable threshold and that, as such, they should not be liable to pay tax. But, under Federal Budget 2016-17, the withholding tax is being deducted on their savings whenever they make withdrawals, which is unfair as they cannot claim credit for the deducted amount.
The PBA says that this tax is likely to also adversely affect the National Financial Inclusion Strategy and will lead to financial exclusion.
The PBA had recommended that Section 236P be removed and, if that was not possible, exemption be provided to the vulnerable groups. It had also recommended that the threshold of transfer transactions be increased to Rs l00,000.
Regarding the Advance Tax on cash withdrawals (Section 231A), unlike the previous Finance Bill, the withholding tax on cash withdrawals from each account of Rs 50,000 and above per day has been widened to cover cash withdrawal of Rs 50,000 and above per day from all banks. In PBA’s view, not only is this unreasonable on the banks’ customers, but it will be practically impossible for each bank to instantly compare with all the other banks whether withdrawals of over Rs 50,000 have taken place during the day.
The PBA, while again assuring the FBR that the banking sector stands ready to support the FBR in its efforts to grow the taxation base and revenue in a fair and equitable manner, has again requested the FBR to reconsider its earlier proposals and include them in the final Finance Bill 2016 to be approved by the parliament.
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