The Finance Act 2022 has introduced enhanced rates of tax on taxable income of banking companies attributable to investment in federal government securities.
The FBR has issued Circular No. 15 of 2022-23 to explain amendments made in the Income Tax Ordinance, 2001.
According to the FBR’s budget explanation circular, the taxable income arising from additional income of banking companies earned from additional investment in federal government securities for tax year 2020 and 2021 was taxable at the rate of 37.5 percent instead of rates provided in Division II of Part I of First Schedule.
This provision was further amended through Finance Act 2021, whereby income attributable to investment in the federal government securities of banking companies was made taxable on the basis of advances to deposit ratios at graduated tax rates of 40 percent, 37.5 percent and 35 percent, if ratio was up to 40 percent, 40-50 percent and above 50 percent respectively.
The Finance Act 2022 has introduced enhanced rates of tax on taxable income of banks attributable to investment in federal government securities. The enhanced rates for tax year 2022 are 55 percent, 49 percent and 35 percent if gross advances to deposit ratio was up to 40 percent, 40-50 percent or above 50 percent respectively. For tax year 2023, and onwards tax rates will be 55 percent, 49 percent and 39 percent if gross advances to deposit ratio is up to 40 percent, 40-50 percent or above 50 percent respectively. The changes have been incorporated by substituting sub-rule (6A) of rule 6C of Seventh Schedule to the Ordinance, FBR stated.
The tax rate on income of banking companies has been enhanced to 39 percent for tax year 2023 from current 35 percent through amendment in Division II of Part I of First Schedule of the Ordinance. Additionally, the application of section 4B has been restricted up to tax year 2022 in case of banking companies, FBR added.
The FBR has also explained the Super Tax on high earning persons. A new section 4C has been introduced through Finance Act, 2022 and this section will apply for tax year 2022 and onwards. Except for the persons whose income as envisaged in this section is below Rs. 150 million, all other persons including those assessed under Fourth, Fifth and Seventh Schedules to the Ordinance are liable to pay super tax on graduated rates ranging from 1 percent to 4 percent based on graduated income slabs provided in Division JIB of Part I of First Schedule.
However, for tax year 2022 the rate of super tax under this section will be 10 percent instead of 4 percent, where the income of the persons engaged, partly or wholly, in business of airlines, automobiles, beverages, cement, chemicals, cigarette & tobacco, fertilizer, iron & steel, LNG terminal, oil marketing, oil refining, petroleum & gas exploration and production, pharmaceuticals, sugar and textiles exceeds Rs. 300 million. For tax year 2023, this super tax on income of banking companies will be 10 percent if the income for the year exceeds Rs. 300 million. For the purposes of this section, the income will be the sum of the following:
(i) Profit on debt, dividend, capital gains, brokerage, and commission; (ii) taxable income (other than brought forward depreciation and brought forward business losses) under section 9 of the Ordinance, excluding amounts specified in; (iii) Imputable income as defined in clause (28A) of section 2 excluding amounts specified and Income computed, other than brought forward depreciation, brought forward amortization and brought forward business losses under Fourth, Fifth and Seventh Schedule. Super tax payable under this section will be paid on the date and manner as specified in under section 137(1) of the Ordinance. In case of default by the person liable to pay super tax under this section, Commissioner through an order in writing will determine the liability of the person and proceed to recover the same under applicable provisions of the Ordinance, FBR added.
