Pakistan rules out ADR tax exemption for banks
Tax collection authority chairman says the government may consider giving an exemption next year
Pakistan's State Minister for Finance and Revenue Ali Pervaiz Malik informed a parliamentary panel on Wednesday that the government was not considering any proposal for giving banks advance-to-deposit ratio (ADR) tax exemption.
Separately, Federal Board of Revenue (FBR) Chairman Rashid Langrial told the panel that the government may consider giving an exemption next year.
The ADR tax is imposed if banks don't meet a 50% Gross Advances to Deposit Ratio by December. As of June, the average ADR was 38.6%, and only three of 19 listed banks met the 50% ADR threshold.
The tax was initially imposed in 2022 to boost business and lending but was paused in 2023. With the exemption now over, banks must adjust to avoid a 10% tax if ADR is 40-50%, or a 16% additional tax if below 40%.
The FBR chairman further stated that the ADR ratio goes up if banks extend more loans to the private sector compared to investing in government securities.
FBR submits summaries to PM
During his briefing to the parliamentary panel, the FBR chairman also informed lawmakers that the tax collection authority has submitted seven summaries to Prime Minister Shehbaz Sharif for enforcement measures, including two summaries for taking action against sales of illicit cigarettes and smuggled products, under the FBR’s transformation plan.
The FBR will generate PKR 200-250 billion through these enforcement efforts.
Under the FBR’s transformation plan, provincial departments would be empowered to take action against sales of illicit cigarettes. The FBR has a limited workforce of 100 officers for conducting enforcement activities and needs coordinated efforts of provinces, he informed the panel.
Langrial also said the FBR is reviewing the digital invoicing regime and will replace it with the certification regime. This will facilitate small and medium-sized businesses to have digital invoicing system without giving a huge amount for registration to the license holder.
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