About Rs 70 billion in additional tax revenue is expected after the amendments to the ADR

• The banking sector interest rate jumped from 39% to 44%.
• The National Treasury is expected to receive 70-75 billion. Rs in taxes.
• ADR will be replaced with fixed maximum plate ratios.

ISLAMABAD: The federal government is eyeing an additional Rs 70-75 billion in the state kitty by the end of December after the cabinet approved promulgation of an income tax ordinance to bring about changes in the Advance Deposit Ratio (ADR). The News reported on Saturday.

According to the proposed agreement reached between the committee led by Deputy Prime Minister Ishaq Dar and the banking sector, both sides have agreed that the calculation of bank profits due to ADR will be replaced by ratios towards a fixed maximum slab.

The banking sector interest rate has been increased from 39% to 44% as per the agreed formula. Now the banking sector is supposed to pay a tax amount of Rs 70-75 billion to the national exchequer.

“The federal cabinet has approved the promulgation of an income tax ordinance, but the president of Pakistan is yet to sign it. We are waiting for the president to issue this ordinance,” said a top official of the Federal Bureau of Revenue (FBR). the Friday publication.

ADR in terms of Income Tax Ordinance 2001, through the Finance Act 2022, introduced the higher rate of tax for banks to issue ADRs of Banks for the tax year 2022 (Jan 2021 — Dec 2021) and henceforth with the introduction of sub-rule (6A) to rule 6C relating to rates:

• 55% tax on income attributable to investments in Federal Government Securities if the ADR ratio is up to 40%.
• 49% tax on income attributable to investments in Federal Government Securities if the ADR ratio is between 40 and 50%.
• Normal rates if ADR ratio exceeds 50%.

Now, instead of these different slabs, the ADR has been settled by the corporate sector rate from 39% to 44% on profits derived from advances in government securities by the banking sector.

Earlier, Prime Minister Shehbaz Sharif had set up a high-powered committee under Deputy Prime Minister Dar to explore the possibility of bringing profits to banks from investments in government securities.

The committee comprised the Deputy Prime Minister, Finance and Revenue Minister, Law Minister, Finance and Revenue Minister, Attorney General for Pakistan, Finance Secretary, FBR Chairman, Governor of State Bank of Pakistan (SBP) and Asma Hamid.

The committee’s Terms of Reference (ToRs) included reviewing the existing legal framework for fiscal measures related to the banking sector’s SDR, discussing alternative fiscal systems for taxing bank profits derived from investments in government securities, and working with the banking sector to develop consensus on the future course, if possible.