KARACHI (June 11 2003) : The Federal Government has accepted recommendations presented by the State Bank to provide tax relief to the banking sector, said a circular issued by the SBP for chief presidents and executives of banks.
On the basis of these recommendations, the Government in the Federal Budget has announced following incentives pertaining to the banking sector, it said.
Banks have been allowed a deduction not exceeding 3 percent of income arising out of consumer loans for creation of reserves to set off bad debts subsequently arising out of such loans.
Further, any amount of bad debt not wholly set off against the reserves could be carried forward for adjustment against the reserves for the following years.
Limits of tax credit in respect of profit on debt on housing loans from scheduled banks or non-bank financial institutions increased from Rs 100,000 or 25 percent to Rs 500,000 or 40 percent of taxable income, whichever is lower.
The Finance Ordinance 2002 introduced a new Section 57A in the Ordinance to promote a process of consolidation in the financial services sector.
The said section permits carrying forward for set-off of loss of a merging entity, being one or more banking companies or an NBFI, against the business profits and gains of the amalgamated company and such right is available for a period of six tax years immediately succeeding the tax year in which the loss was sustained by an amalgamating company or companies.
The said scheme has to be approved by the SBP and the Securities and Exchange Commission of Pakistan (SECP) by June 30, 2003 and now this time limit has further been sought to be extended for another one year ie up to 30.6.2004.
In line with last year's pronouncement, the tax on banks has been further reduced from 47 percent to 44 percent for the year 2004.
The minimum threshold for withholding of tax from rent of immovable property has been sought to increase from Rs 100,000 to Rs 200,000 and rate of withholding tax is also now proposed to be reduced from 7.5 percent to 5 percent.
This will facilitate the promotion of housing finance.
The excise duty has been reduced on some housing inputs like cement, wire and cable etc to promote housing sector in the country.
The duty on ATMs has been reduced from 20 percent to 10 percent in order to encourage e-banking.
“We hope that the above budgetary proposals would help the banking industry in a considerable way and banks will capitalise on them to explore new business opportunities,” said the circular.
The State Bank has advised all banks to bring this communication to the attention of all branches so that they are fully conversant with these changes and are able to advise their clients properly.