KARACHI, June 10: The State Bank has sent a letter to heads of all banks informing them of the measures the government has announced in the budget 2003-04 for providing relief to the banking sector.

The letter says the following budgetary measures have been announced on the recommendations of the State Bank:

1. Banks have been allowed a deduction not exceeding three per cent of income arising out of consumer loans for creation of reserves to set off bad debts subsequently arising out of such loans. Further, any amount of bad debt not wholly set off against the reserves could be carried forward for adjustment against the reserves for the following years.

2. Limits of tax credit in respect of profit on debt on housing loans from scheduled banks or NBFIs increased from Rs100,000 or 25 per cent to Rs500,000 or 40 per cent of taxable income.

3. The Finance Ordinance 2002 introduced a new section 57A in the ordinance to promote a process of consolidation in the financial services sector. The said section permits carrying forward for set off of loss of a merging entity being one or more banking companies or an NBFI against the business profits and gains of the amalgamated company and such right is available for a period of six tax years immediately succeeding the tax years in which the loss was sustained by an amalgamating company or companies. The said scheme has to be approved by the SBP/SECP by June 30, 2003, and now this time limit has further sought to be extended for another year i.e up to June 30, 2004.

4. In line with the last year pronouncement the tax on banks has been further reduced from 47 per cent to 44 per cent for the year 2004.

5. The minimum threshold for withholding of tax from rent of immovable property has sought to increase from Rs100,000 to Rs200,000 and rate of withholding tax is also now proposed to be reduced from 7.5 per cent to 5 per cent. This will facilitate the promotion of housing finance.

6. The excise duty has been reduced on some housing inputs like cement, wire and cable, etc., to promote housing sector in the country.

7. The duty on ATMs has been reduced from 20 per cent to 10 per cent in order to encourage e-banking.

The letter says the central bank hopes that these budgetary proposals “would help the banking industry in a considerable way and banks will capitalize on them to explore new business opportunities.” The SBP has asked the heads of all banks to bring this communication to the attention of all bank branches “so that they are fully conversant with these changes and are able to advise their clients accordingly.”