Govt Amends Income Tax Law to Generate Rs240B Revenue from Banks

By Salman Khan:
The government has made amendment in taxation law to generate additional Rs 240 billion revenue from the banks by ending manipulation of Advance to Deposit Ratio (ADR).

The banks have reportedly involved in manipulation of ADR to make income evasion.

The government has approved amendment in ‘Income Tax (Amendment) Ordinance, 2024 that would not only generate additional Rs 240 billion revenue from banks but would also end manipulation of ADR.

The persistent manipulations of ADR and litigations by banks led to a series of deliberations for resolving this matter in the ‘Committee to Resolve the Issue of Advances to Deposit Ratio,’ constituted by the Prime Minister on 5th December 2024.Sazgar Dominates SUV Market with HAVAL

Banks had expressed willing to pay a higher amount of tax if it were charged in a simple and straightforward manner rather than through the contentious and complex ADR regime.

Simply put, banking companies expressed willingness to pay a higher base tax rate instead of the ADR tax for the tax year 2025 and subsequent years.

In return, banks requested rescission of the ADR tax for the tax year 2025 and onwards. They also requested termination of the ADR regime for the tax year 2022, as a past and closed transaction, to conclude ongoing litigation once and for all.

The proposal appeared logical to the government. To resolve this intractable tax dispute, sub-rule (6A) of rule 6C of the Seventh Schedule to the Ordinance was proposed to be amended, rescinding the ADR regime for the tax year 2022 and the tax years 2025 onwards, while clarifying the applicability of the ADR ratio based on the closing date of audited accounts.

To recover approximately the same amount of tax, it was also proposed to amend Division II of Part I of the First Schedule to the Ordinance to enhance the tax rate for banks to 44%, 43%, and 42% for the tax years 2025, 2026, and 2027 onwards.

The draft ‘Income Tax (Amendment) Ordinance, 2024,’ duly vetted by the Law and Justice Division, was presented to the Cabinet.

The government has approved titled ‘Amendments proposed in Income Tax Ordinance, 2001 with respect to Banking Companies,’ submitted by the Revenue Division. While approving the proposals, the government has given its in-principle and final approval to the draft ‘Income Tax (Amendment) Ordinance, 2024,’ for placement before the President of Pakistan for promulgation under Article 89 of the Constitution of the Islamic Republic of Pakistan.