Pakistan Banks Association (PBA) has proposed to the Federal Board of Revenue (FBR) to give compensation on advance tax payments made by banks, as they incur heavy cost in the shape of advance tax on a monthly basis. The PBA has submitted its budget proposals (2015-16) to the FBR for consideration/inclusion in next fiscal year's budget.
According to PBA, there should be compensation on advance tax available to a taxpayer as it blocks the funds of the taxpayer and often is paid in excess of the declared liability in return. At times the taxpayers have to pay advance tax earlier than the due date due to the budgetary pressure. It is proposed that the section 147 and Rule 5 of 7th Schedule should be appropriately amended to allow KIBOR-based compensation on utilising banks' money in form of advance tax.
The rationale behind the proposal is to bring fairness in taxation system. The banks incur heavy costs by making advance tax payments on a monthly basis instead of quarterly basis as is allowed to other taxpayers. For example, advance tax monthly instalment paid in January 2015 (tax year 2016) credit shall be given at the time of filing return in September 2016. Banks can instead invest these funds to earn yields, which in turn will be subject to tax and thus the FBR will also benefit. If the FBR insists on monthly payment of advance tax, the return/compensation on the basis of Karachi Inter Bank Offered Rate (KIBOR) should be given for utilising the money. It is important to note that up to assessment year 1997-98, the department used to pay 6 percent compensation on such funds, under the repealed Income Tax Ordinance 1979, PBA said.
It is suggested that for utilising heavy amount as advance tax from bank every month, the government should also pay return/compensation on the basis of KIBOR. On the income so paid by the FBR, the banks will pay tax @35 percent, which in turn will increase the government revenue. Referring to the Rule 5 (1A) of 7th Schedule & Section 147(6) regarding Advance Tax Regime for banks, PBA said that the FBR in June 2012 had issued a SRO 561(1)/2012 whereby the provisions of Seventh Schedule relating to the advance tax have been amended. Consequently the provision of section 147(6) relating to filing of lower estimate are no more applicable on banks even if the bank estimates that its tax payable for the relevant tax year is lower than the amount of advance income tax payable. Further, the bank is required to file an estimate of the income on June 15 and if tax liability is higher than that worked out on the basis of turnover ratio, then 50 percent of such liability is to be paid by June 15.
It has been proposed that the RO 561(I)/2012 should be withdrawn. This will restore the provision of Advance Income Tax as original is contained in Rule 5 of Seventh Schedule. The rationale behind the proposal is that the amendments made through the aforesaid notification has deprived the banks, inter-alia, from their right of filing estimate of lower tax liability which is available to all other categories of taxpayers. There is no rational behind this different treatment.
The Federal Tax Ombudsman in its order has declared SRO.561(1)2012, on payment of advance tax by banking companies, as unlawful with an observation that the introduction of an SRO that has the effect of amending the statute being contrary to law tantamount to maladministration. Furthermore, banks are already making monthly advance tax payments whereas other sectors pay advance tax on quarterly basis, PBA added.
Comments
Comments are closed.