ISLAMABAD, April 3: Non-banking finance companies are likely to ask the government to re-consider its decision to equalize the tax rate on the NBFC sector and commercial banks while preparing the budget for 2004-05.

For the past several years, a source told Dawn, the government had been reducing the difference between the tax rates on the two sectors by three per cent every year.

The target is to enforce a uniform tax rate of 30 per cent on them.

"This is, however, ill-advised" because the decision-makers have not taken cognizance of the vast difference between the two sectors' sources of revenue, it is pointed out.

The commercial banks derive significant amounts of profits from non-funded operations in the shape of services rendered to their clients against fees which have been increased substantially in recent years.

The NBFCs, on the other hand, have no such avenues for increasing their revenues, the source argued.

The NBFCs, he said, had always played a key role in the development and broadening of capital market through a variety of instruments, irrespective of heavy odds.

The decision to bring them on a par with the commercial banks was also ill-timed because the country is mired in a deep recession, resulting in a substantial drop in profits. This has affected the NBFC particularly hard, unlike the commercial banks that continue to earn sizable profits through their non-funded operations, the source observed.

The NBFCs would, therefore, urge the government to realize that equal rate of tax would put the latter at a great disadvantage viz-a-viz the commercial banks, threatening their very viability, the source added.