By Abdul Wajid Khan ISLAMABAD, June 06, (INP-WealthPK): Pakistan Banks Association (PBA) has proposed to the government to abolish the ‘Super Tax’ imposed on banks and levy a uniform tax rate of 29% on them on the pattern of other sectors in the upcoming budget. According to a letter written by Pakistan Banks Association Secretary-General Tawfiq Hussain to the chairman of the Federal Board of Revenue, a copy of which is available with Wealth-PK, the banking sector contributes a lot to the national exchequer in the form of payment of taxes including income tax, federal excise duty, provincial sale tax on services and collection of withholding tax. It says that the banking sector is playing a vital role in the economic development of the country by supporting major initiatives of the government and relevant institutions. For the year ended on December 31, 2021, the total contribution to the exchequer from the members of PBA was more than Rs340 billion. PBA says that unlike other corporate sectors, the government has not reduced the income tax rate for the banking sector. It says that the tax rate of 35% for banks is very high when compared to other business sectors in Pakistan. To provide a level playing field, the banks should also be taxed at a uniform rate of 29% as other sectors, it adds. The letter urges the government to abolish the 4% Super Tax imposed on banks as it is discriminatory. It says that Super Tax was introduced in 2015 at a rate of 4% for banks. The ratio was 3% for individuals, other than banking companies, having an income of Rs500 million or more. It was only a one-time levy to cater to the specific needs “for rehabilitation of temporarily displaced persons”. However, it was extended each year for both banking and non-banking sectors. Later, it was abolished for the non-banking sector in 2020. Now Super Tax at 4% has been made a permeant feature for the banking sector with the promulgation of the amended tax law. The Super Tax is discriminatory, as only the banking sector has been singled out for its imposition, says the letter. It says that the tax incentives available to an individual, who invests in shares listed on the stock market and in units of mutual funds, are very attractive and have a huge advantage over those available to a person, who places funds in bank deposits. In addition, an individual is also entitled to a tax rebate on investment in the mutual fund whereas no such incentive is available to a person, who makes placements in bank deposits. The letter urges the authorities to correct this “disparity”. It says that banks should be given inter-bank-based compensation on utilisation of money in the form of monthly advance tax because the banks pay heavily for such advance payments on a monthly basis. Banks can invest these funds to earn considerable returns, which in turn, will be subject to tax and thus FBR will also be a beneficiary, says the letter. It suggests that a new sub-rule should be added to rule (3) of the Seventh Schedule of Sales Tax Act specifically mentioning Musharakah, Modaraba, Murabaha, Musawama, Ijarah, Istisna and Salam and any other Sharia-compliant transaction as financing transactions and not trading activity. The introduction of a new clause in the Seventh Schedule, explaining transactions under the Islamic mode of financing, will remove ambiguity so as not to treat such transactions as trading activities. The letter says that currently, the income tax rate of 29% is applicable to microfinance banks. The rate of tax may be reduced to 20% as the microfinance banking sector is supporting and providing micro-loans to the poor and needy customers. Also, microfinance banks are playing an important role in financial inclusion, it adds.