The government is likely to enhance the income tax rate on banking and insurance companies from 35 percent to 37.5 percent or 40 percent in the budget for 2011-12. Sources told Business Recorder here on Wednesday that the tax officials are working on a budgetary proposal for increase in the corporate tax rate on banking and insurance companies from 35 percent to 37.5-40 percent from the next fiscal year.
At present, the corporate tax rate for all kinds of companies, including ''private limited'' companies, public listed companies, banking companies and insurance companies are subject to a uniform rate of 35 percent for the last many years. Globally, it has been observed that the rate of banking and insurance companies is comparatively higher than other companies. The applicability of existing rates in different companies shows that the rate of tax on banking companies is higher as compared to other companies.
On the other hand, a similar rate of 35 percent is applicable on banking companies, insurance and other companies. Secondly, the rate for banking companies has not been changed for the last 4-5 years. Keeping in view best international practices, the question arises that why an equal tax rate is applicable on banking, insurance and other companies in Pakistan?, sources said.
According to sources, originally banking sector was subjected to 66 percent income tax rate and corporate sector was liable to pay 42 percent. The rate of banking companies was gradually reduced downward to 35 percent which is equal to the existing 35 percent applicable to the corporate sector. Despite the fact that the income tax rate for banking companies was much higher than the corporate sector, an equivalent tax rate of 35 percent is applicable on insurance, banking and other companies. Instead of proportionate decrease in the tax rates for banking companies, equal reduction in tax rates was resorted to for banking and other companies.
Sources said that the banking companies have been given special treatment under the Seventh Schedule of the Income Tax Ordinance 2001 and such companies are not treated under the normal law. The tax authorities are giving special treatment to them. Both insurance and banking companies have special businesses and operate under the special schedules. Therefore, the rate of tax on banking/insurance companies should be more than the other companies. They added that the rate should be higher for banking sector because they are earning more profit as compared to other industries and business sectors.