The higher rate of tax for the “Advance to Deposit Ratio” will not apply to banks for the tax year 2024 i.e. calendar year 2023.
The Federal Board of Revenue (FBR) issued S.R.O. 226 (I)/2023 to amend the Banking Schedule of the Income Tax Ordinance 2001 on Tuesday.’
Under another notification, the amendment has been made in the Seventh Schedule of the Income Tax Ordinance 2001 exempting profit on debt and capital gains on government-approved debt and debt instruments in the hands of a non-resident company approved for this specific clause by the Federal Government. This is to incentivize foreign banks to sell bonds in foreign markets.
The notification S.R.O. 226 (I)/2023 said, “in the exercise of the powers conferred by rule 10 of the Seventh Schedule to the Income Tax Ordinance, 2001 (XLIX of 2001), the Federal Government is pleased to direct that the following further amendments shall be made in the Seventh Schedule, namely: — In the aforesaid Schedule, in rule 8, after sub-rule (4), the following new sub[1]rule shall be added, namely: – “(5) The provisions of sub-rule (6A) of rule 6C shall not apply to a banking company for the tax year, 2024”, the notification added.
Fahad Rauf, head of equity research at Ismail Iqbal Securities said,
The government has removed the higher tax on investment in govt securities, which was linked to Banks’ ADR (advances to deposit ratio). The government tried to increase tax collection but it did not bear fruit as banks shed deposits to meet ADR targets. It reduced banking system liquidity. Now banks can again take on high-cost deposits and invest in govt securities, which would help govt in domestic borrowing, reliance on which has increased amid a lack of foreign funds for budgetary support.
