KARACHI: First Micro Finance Bank (FMFB) has suggested waving off income tax on profit of Micro Finance Banks (MFBs) in the country.
“Currently MFBs are paying income tax under the same slab as that of other banking companies,” FMFB stated in its pre-budget proposals sent to the Ministry of Finance.
FMFB said the aim of establishing MFBs in the country is to eliminate poverty and for this purpose MFBs are providing finances to marginalised people at their doorstep.
FMFB further said the operating cost of MFBs is more than normal banks because other banks are working purely on commercial consideration and added in order to demonstrate government’s commitment to reduce poverty the income tax on profit of MFBs should be abolished.
FMFB said the government may impose the condition that no dividend shall be paid out of profit for certain number of years or at least 5 years.
FMFB said at the same time another condition may be imposed that the retained profit will be re-invested to enhance the lending capabilities of the bank.
Sources said another bank, Union Bank has suggested to policy makers that the scope of allowing income tax law with regard of deduction of bad loans should be enlarged to consumer financing.
Sources said Union bank has represented that “tax law should be amended and made clear so that all provisions and reserves made by the banks for doubtful debts, specific and general provisions for consumer product advances, like credit cards, autos, house loans, mortgages and general reserves on the basis of prudential regulations should be allowed as deduction in the computation of income and tax liability.
Union Bank said under section 21-K, of income tax ordinance, tax is levied on companies on such perquisites paid to employees, which are in excess of 50 percent of an employee salary.
Union bank opined that as all perquisites and benefits of an employee have now become taxable, this amounts to double taxation that is on bank as well as on individuals and should therefore be withdrawn.
The bank suggested assessing officers of IT department must be stopped in making add backs to taxable income of the banks on the grounds, which are already quashed at the superior courts. It argued that repeating the same mistakes already quashed by the courts delays the entire process of tax assessment of banks.