MUZAFFARABAD, April 23: A dispute between the AJK income tax department and scheduled banks operating in Azad Jammu and Kashmir is feared to end up in closure of their branches and subsequent loss of employment to their hundreds of local employees, sources said.

The sources said that the income tax department was “arbitrarily levying tax on the basis of their deposits whereas it should instead have been charged on the basis of their net profits”.

“Elsewhere, tax is charged on the income or so to say on the profit but here the income tax department demands something altogether different,” a banker said.

The banks, he said, were ready to pay the tax on the profits as recorded in their annual balance sheets but not on their deposits.

A UBL official said that his bank had paid Rs7 million in tax in 2004-05 but the income tax department was demanding Rs770 million from them without any justification.

The UBL has 73 branches in the AJK and its deposits in the state are to the tune of Rs14 billion. “It is not possible for us or any other bank to operate in a loss making situation,” he said.

The sources said that the dispute with the income tax department had led to the closure of 73 branches of Muslim Commercial Bank in the AJK, causing inconvenience to its clients. “If the situation continues other banks may close their operations,” they said.

The local credit advisory committee had also expressed concern over the AJK income tax department’s attitude in a meeting, observing that the tax levied by it was not only against the interest of banking industry but also against regional development particularly in the changed scenario, the sources said.

The meeting warned that other banks were also planning to quit the area, which was bound to cause gross unemployment in the state.

The sources said that the meeting unanimously resolved to bring the issue in the notice of the AJK prime minister and finance secretary “either for total withdrawal or a very soft comfortable tax package”.

Meanwhile, AJK finance secretary Salim Sethi was already in picture and wanted to resolve the issue to the satisfaction of both the parties, according to a delegation of bankers which called on him recently.

“The secretary told us that he would shortly convene a meeting of local heads of all commercial banks followed by another meeting with the income tax department authorities to reach an amicable settlement of the dispute,” leader of the delegation told Dawn.

The secretary was informed that due to “unjust and illogical tax assessment” by the AJK income tax authorities the commercial banks had no alternative but to close their network, he said.

The delegation also pointed out that closure of bank branches would not only affect the employees but also deprive the government from its major sources of income received from the commercial banks in shape of Zakat and taxes.

The secretary assured the delegation that no bank would be forced to pack up and instead maximum efforts would be made to support their functions with a view to expediting the pace of development in the AJK.