The Federal Board of Revenue (FBR) intends to increase the 4 percent super tax despite the key budget proposal of the banking sector to abolish the said tax in the upcoming FY23 budget.
Official sources told Propakistani that the Ministry of Finance has directed the FBR to review the major budget proposals of the banking sector. Budget makers of the FBR are analyzing each proposal of the banking sector in view of its impact on revenue and other implications on the banking sector and consumers.
The budget proposal of the banking industry on super tax revealed that the tax was introduced in the tax year 2015 at 4 percent for banks and at 3 percent for persons other than banking companies having an income of Rs. 500 million or more.
It was only a one-time levy to cater to the specific needs for rehabilitation of temporarily displaced persons. However, it was extended each year for both banking and non-banking sectors and abolished for non-banking sectors in the tax year 2020.
Now the super tax at 4 percent has been made a permanent feature for the banking sector with the promulgation of the Tax Laws (Amendment) Ordinance 2021.
This tax is discriminatory, as not only the rate was one percent higher for the banking sector as compared to the non-banking sector, but now with the recent amendment, only the banking sector has been singled out for the levy of the tax. This means all other sectors of the economy including financial institutions and insurance companies have been exempted from the tax.
It is, therefore, proposed that super tax for banks, being discriminatory, should be abolished, the banking industry added.
The budget proposals also revealed that for the year ended Dec 31, 2021, the banking sector paid total taxes of about Rs. 178 billion and collected, and paid to FBR, withholding tax of over Rs. 162 billion. Therefore, the total contribution to the exchequer from the banks was over Rs. 340 billion for that year.
The industry also proposed that the tax rate of 35 percent for banks is not only one of the highest in the region but also very high when compared to other business sectors in Pakistan, including the financial service sector, which is taxable at the rate of 29 percent.
Responding to the proposal of the banking sector, officials disclosed that the banking sector is paying four percent super tax. A proposal is seriously under consideration to increase the rate of super tax on banks.
The potential of tax from the banking sector is much higher compared to the profits earned by the banks. The proposal to raise the tax on banks would have a positive revenue impact on the overall direct taxes collection during 2022-23.