Tax Reform Commission (TRC) has recommended a new provision in Seventh Schedule (banking schedule) of the Income Tax Ordinance 2001 to bind banking companies for providing detail regarding withholding tax deducted at source by the banks in the new format.
According to the final recommendations of the TRC, the income generated by the Banking Companies in respect of investment made in excess of the minimum liquidity reserves under section 29 of the Banking Companies Ordinance 1962 in PIB and T-bills shall be subject to High Income Contribution. The rate of High income contribution surcharge is 15 percent on the said amount of taxable income generated by the Banking Company in excess of the statutory requirement.
A new provision is proposed to be entered in seventh schedule in order to bind the Banking companies to provide the detail regarding the withholding tax deducted at source by the Banking companies in the format covering name of the taxpayers, NTN/CNIC no, amount on which tax deducted and amount of tax. TRC recommended that the section 236-M and 236-N relating to bonus share are introduced with non-obstante clause and applies to banking companies which negates the purpose of exemption provided under this clause. Exemption from section 236-M and 236-N may be provided to banking companies.
It is recommended that the provision for advances and off balance sheet times to be allowed to the extent of 1 percent of total advances and 5 percent of the total advance in case of small and medium enterprise [SME]. The provisions for advances and off balance sheet items shall be allowed up to a maximum of 1 percent of total gross advances (excluding advances to SME); and provisions for advances and off-balance sheet items shall be allowed at 5 percent of total gross advances relating to consumers and small and medium enterprises (SMEs) (as defined under the State Bank Prudential Regulations)] provided a certificate from the external auditor is furnished by the banking company to the effect that such provisions are based upon and are in line with the Prudential Regulations. Provisioning in excess of 1 percent of total advances for a banking company and 5 percent of total advances for consumers and small and medium enterprises (SMEs)] would be allowed to be carried over to succeeding years:
Provided that if provisioning is less than 1 percent of total gross advances, for a banking company then actual provisioning for the year shall be allowed:
Provided further that if provisioning is less than 5 percent of advances relating to consumers and small and medium enterprises (SMEs) then actual provisioning for the year shall be allowed and this provisioning shall be allowable from the first day of July, 2010, it proposed.
TRC added that the banking company shall be required to pay advance tax for the year under section 147 in twelve equal instalments payable by 15th of every month. Other provisions of section 147 shall apply as such. Sub-clause (1A) may be deleted as it requires estimate to be made in June ie in the mid of tax year which is cumbersome. Further, the clause was introduced by SRO 561/2012 which was not ratified by Parliament.
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