According to the SRO 1173(I)/2017, in exercise of powers conferred by rule 10 of the Rules for the Computation of the Profits and Gains of a Banking Company and Tax Payable thereon made part of the Seventh Schedule to the Income Tax Ordinance, 2001, the federal government has directed that the following amendment shall be made in the Seventh Schedule to the said ordinance namely:
In the aforesaid schedule, in rule 7C, for the word and figure "and 2016", the expression ", 2016 and 2017" shall be substituted, it added.
Sources said that Super Tax has been extended to the banking companies for fiscal year 2017-18 through an amendment to rule 7C of the Seventh Schedule of Income Tax Ordinance. The Super Tax was levied to raise resources for rehabilitation of temporarily displaced persons. It was imposed through the Finance Act, 2015 for the tax year 2015 on persons earning income of Rs 500 million or more at the rate of three percent of their income.
However, for banking companies, Super Tax was imposed irrespective of quantum of income and at the rate of four percent of income tax. Provisions of Super Tax were inserted through section 4 A of the Income Tax Ordinance, 2001 for taxpayers other than banking companies and through rule 7C of the Seventh Schedule in case of banking companies. Income of banking companies is computed in accordance with the provisions of Seventh schedule to the Ordinance.
Subsequently, Super Tax was extended for the years 2016 and 2017 through the Finance Acts 2016 and 2017, respectively for taxpayers other than banking companies. However, for banking companies it is to be extended by amending rule 7C of the Seventh Schedule.
Under rule 10 of the Seventh Schedule, the federal government is empowered to amend the Seventh Schedule. According to the Seventh Schedule, income, profits and gains of a banking company shall be taken to be the balance of the income from all sources before tax, disclosed in the annual accounts required to be furnished to the State Bank of Pakistan subject to the following provisions namely: (i) deduction shall be allowed in respect of depreciation, initial allowance and amortization under sections 22, 23 and 24 provided that accounting depreciation, initial allowance or amortization deduction shall be added to the income.
No allowance of deduction under this rule shall be admissible on assets given on finance lease;(ii) section 21, sub -section (8) of section 22 and part III of chapter IV shall, mutatis mutandis, for computation of a banking company supply; (iii) provisions for advances and off balance sheets items shall be allowed up to maximum of 1 percent of total advances whereas provisions for advances and off-balance sheet items shall be allowed at 5 per cent of total advances for consumers and Small and Medium Enterprises (SMEs) (as defined under the SBP Prudential Regulations) provided a certificate from the external auditor is furnished by the banking company to the effect that such provisions are based upon and are in line with the Prudential Regulations. Provisioning in excess of 1 percent of total advances for a banking company and 5 percent of total advances for consumers and SMEs would be allowed to be carried over to succeeding years.
Copyright Business Recorder, 2017