Rate of tax for Banking Companies
The Finance Act, 2022 has brought about certain amendments in the Income Tax Ordinance, 2001 (the Ordinance, hereafter). Some significant amendments on Rate of tax for Banking Companies are explained hereunder: –
Tax rates for banking companies are enhanced as explained hereunder:
(i) The taxable income arising from additional income of banking companies earned from additional investment in Federal Government securities for tax year 2020 and 2021 was taxable at the rate of 37.5% instead of rates provided in Division II of Part I of First Schedule.
This provision was further amended through Finance Act, 2021, whereby income attributable to investment in the Federal Government securities of banking companies was made taxable on the basis of advances to deposit ratios at graduated tax rates of 40%, 37.5% and 35%, if ratio was upto 40%, 40-50% and above 50% respectively.
The Finance Act, 2022 has introduced enhanced rates of tax on taxable income of banks attributable to investment in Federal Government securities.
The enhanced rates for tax year 2022 are 55%, 49% and 35% if gross advances to deposit ratio was upto 40%, 40-50% or above 50% respectively.
For tax year 2023, and onwards tax rates will be 55%, 49% and 39% if gross advances to deposit ratio is upto 40%, 40 -50% or above 50% respectively. The changes have been incorporated by substituting sub-rule (6A) of rule 6C of Seventh Schedule to the Ordinance.
(ii) The tax rate on income of banking companies has been enhanced to 39% for tax year 2023 from current 35% through amendment in Division II of Part I of First Schedule of the Ordinance. Additionally, the application of section 4B has been restricted upto tax year 2022 in case of banking companies.
For more information on FBR’s new regulations / circulars/ SROs/ amendments in taxation laws in Pakistan please visit https://www.fbr.gov.pk/