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Settlement of Non-performing loans: CBR urged not to charge tax

LAHORE, March 27: Businessmen have called upon the Central Board of Revenue (CBR) not to charge any tax on the settlements of the non-performing loans (NPLs) under the central bank's write-off of irrecoverable loans and advances scheme.

Under the State Bank scheme, the delinquent borrowers have been allowed to deposit 10 per cent of the Forced Sale Value (FSV) of their projects immediately and the balance over a period of three years. Resultantly, the banks may have to write off some amount due out of principal and interest.

“The projects availing the facility will not pay full amounts now being declared as payable. Therefore, reduction in liability will attract tax under section 25(c) and under section 14(f) of the Income Tax Ordinance, 1979 (Sec 11(e) of the Income Tax Ordinance 2001,” says a letter sent to prime minister's adviser on finance Shaukat Aziz by the Rawalpindi Chamber of Commerce and Industry last week.

The letter says: “Any write-off of bank interest and principal amount, if taxed, will negate the very purpose of revival of sick and closed units. Such projects will not be able to pay tax on write-off amounts due to existing, adverse liquidity position.”

Therefore, the RCCI has recommended to the premier's adviser that instructions be issued to the Central Board of Revenue (CBR) that no tax should be charged on settlements under the SBP circular (No:29) issued on October 15, last year.

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