The federal cabinet has refused to grant exemption to State Bank of Pakistan (SBP) from property tax in Cantonment Boards, fearing that any such decision would set a wrong precedent, well-informed sources told Business Recorder. The cabinet was informed that all Cantonment Boards had levied property tax on State Bank of Pakistan/banking Services Corporation buildings located in their respective jurisdictions, despite the fact that it was not engaged in commercial activities and was fully owned by the Government of Pakistan.
The cabinet was further informed that the properties of the SBP should, therefore, be treated as if owned by the federal government and should be exempted from the levy of property tax, in consonance with the scheme of taxation already enshrined in the SPB Act, 1956 whereby it was exempted from stamp duty, income tax in the SBP Act, 1956 and wealth tax under sections 48 and 49 of the Act.
The sources said the matter had twice been taken up with the Defence Division, which was of the view that the SBP could seek exemption from payment of tax under section 99-A of the Cantonment Act, 1924 subject to plausible justification. Accordingly, the request duly supported by Law and Justice Division, was made for grant of exemption to the SBP buildings in the light of section 99-A of the Cantonment Act 1924.
Defence Division, in its written comments made a reference to sub-section (2) of section 3 of the State Bank of Pakistan Act, 1956 (XXXIII of 1956) which reads as follows "the bank shall be a body corporate by the name of the State Bank of Pakistan or Bank-e-Daulat-e-Pakistan, having perpetual succession and a common seal, and shall by the said name sue and be used".
The sources further stated that Defence Division argued that it would, therefore, appear that the status of the State Bank of Pakistan is autonomous body, corporate and is not a department of the federal government and is a juristic person liable to pay tax. If plausible justification exists, the State Bank of Pakistan may seek exemption from the pay of tax under section 99-A of the Cantonment Act, 1924(II of 1924).
The SBP has observed that its property tax obligations determined by the Cantonment Board authorities have now started running into millions of rupees. It further stated that property tax amount of SPB's buildings in cantonment areas of Hyderabad, Rawalpindi, Peshawar, Quetta, has surged by 31.64 per cent from Rs 22,263,084 in 2007-10 to Rs 34,415,369 in 2013-16.
According to the Central Bank, the considerable increase in the amount of cantonment dues is because of the fact that some of the Cantonment Boards erroneously treat the SBP as commercial entity and levy exorbitantly higher property tax.
The bank has also claimed that the SBP is not a profit making entity and under its Act is mandated to undertake various public service functions including issuance of currency, ensuring financial system stability etc, which otherwise would have to be provided by the government itself. Thus classifying SBP as a commercial entity by the Cantonment Board is grossly inconsistent with the Bank's legal framework and is not based on facts.
Further, the Bank under its Act is obligated to pass on its entire surplus profit to the federal government. Accordingly, assessing enhanced amount of taxes over the SBP by the Cantonment Board is in fact a levy on the federal government as it will reduce the government's "surplus profit".
The summary was submitted in accordance with the Supreme Court of Pakistan's judgment reported as PLD 2017 SC 808 for exemption from levy of property tax on SBP/ Banking Services Corporation Buildings by Cantonment Boards. During the course of discussion, it was also pointed out that property tax was a major source of income for the Cantonment Board, which does not obtain any grant from the federal/provincial governments. Giving exemption to the SBP/ BSC would set a wrong precedent. After detailed discussion and hearing the viewpoints of both the organisations through the administrative ministries, the cabinet rejected the SBP's proposal.
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