ISLAMABAD, April 25: The government is considering a proposal to slash down the rate of income tax for banking companies and private companies to 35 per cent in the up-coming budget for the year 2005-06. Well-placed sources told Dawn on Monday that the budget makers also considering another proposal to cut down the rate of income tax for small companies to around 25 per cent to strengthen the corporate sector.

The proposals came from various trade bodies, bar associations, who have termed the existing rate the highest in the region. The government has also constituted a task force for the corporate sector that also proposed a string of measures including the uniform rate of income tax for the corporate sector.

During the tax year 2004, government has reduced the rate of income tax for banking company to 44 per cent from 47 per cent and for private company to 41 per cent from 43 per cent respectively. While the rate of income tax for public company is set at 35 per cent.

The sources said that corporate sector has asked the government to scale down the existing income tax rate to uniform rate of 35 per cent for banking company and private company during the budget for the year 2005-06 instead of an earlier commitment of doing the same latest by the tax year 2007.

In India the corporate tax rates for resident corporations stood at 35 per cent along with 10 per cent surcharge, 48 per cent for non-resident corporations; in Bangladesh a uniform rate of 35 per cent for resident listed companies including banks, insurance companies and financial institutions and 40 per cent for other companies; in Sri Lanka for all companies 35 per cent; in Malaysia all companies 28 per cent; Singapore all companies 25.5 per cent and United States 35 per cent for all companies.

Tax officials told Dawn that a distinction in tax rate of private and public companies was also necessary as it induces private companies to become broad based, professionally managed and better documented entities.

Similarly, banking companies in Pakistan have a restricted competition and higher source of revenue. The spread between lending and deposit rates was large when compared with neighbouring countries.

There was a justification for taxing banks at a higher rate. The government had already reduced the margin between the tax rate of public limited company and banking company during the last three years.

There will be a colossal loss of revenue in case a uniform rate of tax for all companies was set in the budget, added the tax officials.