KARACHI, June 6: Banks are seeking special taxation concessions from the Central Board of Revenue (CBR) through the introduction of Eighth Schedule in the Income Tax Ordinance 2001, through Finance Bill of the budget 2007-08 to be presented in the National Assembly on June 9, official sources said on Wednesday.

Presently, the Income Tax Ordinance 2001 under chapter XIII has seven schedules, which cover rates of tax, exemption and tax concessions, depreciation, rules for the computation of profits and gains for insurance business, rules for the computation of profit and gains for exploration and production of petroleum, recognise provident funds and exported goods.

However, if the CBR concedes to the demand of banks for introducing eighth schedule in the Income Tax Ordinance through finance bill it may not bring a change in taxation rate for banking business but would bring about drastic changes in mode of payment of advance tax as demanded by banks.

Taxation rates for the year 2006 for banking business were 38 per cent, public limited companies 35 per cent and for private limited companies 37 per cent. However, for the fiscal year 2007 the tax rates for all these categories of businesses were uniform at 35 per cent.

According to proposals forwarded by the banks to the CBR for the introduction of eighth schedule in the new finance bill 2007-08, it has been demanded that an exemption should be allowed to banking business from advance tax.

This would mean that all such transactions and services, where withholding tax is deducted under presumptive tax regime, will not apply to banking business.

Tax consultants and experts told Dawn that all relevant sections pertaining to the banking business in the Income Tax Ordinance, read with part-V of advance tax and deduction of tax at source of Division- III, will have to be withdrawn if the CBR accepts this demand.

The banks in their proposal have asked the CBR that provisions of section 151, 153, 155, 156 and 233 should not apply to a banking company as a recipient of the amount on which tax is deductible. Similarly, the banks have also demanded that no tax should be collected under sections 234, 235 and 236.

Experts on taxation said that this would mean that millions of rupees being presently deducted at source in the banking business across the country and claimed later in the form of refund or rebate at the time of filing of tax returns will have to be stopped.

As a result of this, experts believe, the cash flow of banks would improve drastically because no deduction of tax at source will be made.

Presently, the deduction of tax at sources in the banking business is being made on account of profit on debt, payments for goods and services, income from property, prizes and winnings. However, the biggest account on which the banks would benefit is securities where a very large amount of tax is deducted at source.

Lately, banks’ shares in the capital markets have been rising rapidly, which indicate that the government is inclined to accept banks demand, which will further improve the cash flow of banks.

Another major change banks are seeking from the CBR with regard to any adjustment made in the annual account on account of application of International Accounting Standards IAS 39 and IAS 40, the banks should be excluded in arriving at the taxable income.

The IAS 39 is related to financial instruments for recognition and measurement whereas IAS 40 prescribes the accounting treatment for investment property and related disclosure requirements. The standard is effective for annual financial statements covering periods beginning on or after January 1, 2001.