Karachi, May 17, 2018 (PPI-OT): Pakistan Banking Sector – Finance Bill Amendments Offer Respite for Banks
As per Media Reports, the amendments to Finance Bill 2018-19 include a major relaxation on Super Tax for the Banking Sector.
Accordingly, our understanding suggests that the “effective” Super Tax on Banking Sector would now be at 4% in 2018 (on estimated PBT of 2018), to be booked in Jun-18 – compared to original language of the Bill which implied the same at ~7% (4% on PBT of 2017 + 3% on PBT of 2018).
Note that Banks account for their earnings on Calendar Year basis, hence original imposition of 4% Super Tax in 2018 “Tax” Year meant that the sector would have been required to pay 4% Super Tax on 2017 PBT. In addition, the announcement of Super Tax on prospective basis implied that Banks would have been required to book the tax on recurring basis as well. In case the measure would not have been amended, then it would have translated into “effective” Super Tax of ~7% in 2018, followed by 2% in 2019 and 0% in 2020 – which would have been contrary to the intent of the government.
Post this rationalization, the actual effective tax rate on the sector (on calendar year basis) should come to 4% in 2018, 3% in 2019, 2% in 2020 and Nil thereafter (on the same year’s estimated earnings; we understand that this would be adjustable in forthcoming years, respectively).
The Amendments to Finance Bill so far do not hint of such relief being extended to non-banking calendar year companies – which means they may have to book “effective” Super Tax of 5% in 2018, followed by a mere 1% in 2019, as per our understanding.
For Fiscal Year based companies, there remains no confusion (as their financial year ties with the tax year) – implying an effective super tax of 3%/2%/1%/0% in FY18/FY19/FY20/FY21.