- The banking sector rate increased from 39% to 44%.
- The national treasury is expected to receive between 70 and 75 billion rupees in taxes.
- ADR to be replaced by fixed maximum slab ratios.
ISLAMABAD: The federal government plans to add another Rs 70-75 billion to the state’s kitty by the end of December following the cabinet’s approval of the promulgation of an income tax ordinance. income to make changes to the advance deposit rate (ADR), News reported Saturday.
As part of the draft agreement reached between the committee led by Deputy Prime Minister Ishaq Dar and the banking sector, both parties agreed that the calculation of bank profits under the ADR would be replaced by ratios set at a maximum ceiling.
The banking sector rate was increased from 39% to 44% according to the agreed formula. Now, the banking sector is expected to pay a tax amount of Rs 70-75 billion to the national exchequer.
“The federal cabinet has approved the promulgation of an income tax ordinance but the President of Pakistan is yet to sign it. We are waiting for the president to promulgate this ordinance,” said a senior official of the Federal Bureau of income (FBR). publication Friday.
ADR under the Income Tax Ordinance, 2001, through the Finance Act, 2022, the higher tax rate of banks on the issuance of ADR of banks has been introduced for tax year 2022 (January 2021 – December 2021) and beyond through the insertion of sub-rule (6A) of rule 6C on tax rates :
- 55% tax on income attributable to investments in federal government securities if the ADR ratio reaches 40%.
- 49% tax on income attributable to investments in federal government securities if the ADR ratio is between 40 and 50%.
- Normal rates if the ADR ratio exceeds 50%.
Now, instead of these different tranches, the ADR has been adjusted from the corporate sector rate of 39% to 44% on profits earned from advances on government securities by the banking sector.
Earlier, Prime Minister Shehbaz Sharif had constituted a high-level committee under the leadership of Deputy Prime Minister Dar to explore possibilities of generating profits for banks from investments in government securities.
The committee included the Deputy Prime Minister, Minister of Finance and Revenue, Minister of Law, Minister of State for Finance and Revenue, Attorney General of Pakistan, Secretary Finance, Chairman FBR, the Governor of the State Bank of Pakistan (SBP) and Asma Hamid.
The terms of reference (TOR) of the committee included reviewing the existing legal framework for banking sector ADR-related tax measures, deliberating on alternative tax regimes to tax banks’ profits from investments in government securities and engaging with the banking sector to develop consensus on the way forward, where possible.