Govt may grant tax exemptions to protect depositors' interests

SOHAIL SARFRAZ

ISLAMABAD: The government is planning to grant exemption from income tax, minimum tax and withholding tax/advance tax to Deposit Protection Corporation (DPC), through Finance Bill 2017-18, which would ensure safety of depositors in the event of failure of a financial institution.

Sources told Business Recorder here on Thursday that the amendment is expected in the Income Tax Ordinance 2001 to grant income tax exemption and other tax exemptions to the DPC. The proposal has been floated by the State Bank of Pakistan (SBP) for the upcoming federal budget (2017-18) and being considered by the Finance Division and FBR during the budget exercise for next fiscal year.

According to details, Deposit Protection Corporation (DPC) Act, 2016 was enacted to establish DPC, in order to ensure safety of depositors in the event of failure of a financial institution. The corporation will guarantee full payment of fund held in depositors accounts with a member institution regardless of the number and size of the deposits.

The proposed corporation will be a subsidiary of the State Bank of Pakistan (SBP).The corporation would safeguard the interest of the depositors and compensate them for any possible losses to the extent of protected deposits.

State Bank of Pakistan (SBP) has requested for certain tax exemptions to DPC under Section 49 of State Bank of Pakistan Act, 1956 and Section 31 of the Deposit Protection Corporation Act, 2016, sources said.

Sources said that a meeting on the said issue was held under the chairmanship of finance secretary which was also attended by FBRs representative. In the meeting it was decided that SBP will forward proposals for tax exemption to DPC for inclusion in Finance Bill 2017-18.

Sources said that the SBP has furnished following proposed amendments in Income Tax Ordinance (ITO), 2001 for inclusion in Finance Bill, 2017-18 in light of Section 31 of the Deposit Protection Corporation Act, 2016:

For exemption from Income Tax, the existing clause 66(xx) of Part I of Second Schedule to the Income Tax Ordinance 2001 may be substituted with the following:

"State Bank of Pakistan (SBP), State Bank of Pakistan Banking Services Corporation (SBPBSC), National Institute of Banking and Finance (NIBAF), Deposit Protection Corporation (DPC), and any subsidiary, company or trust incorporated or established as subsidiary of State Bank of Pakistan."

For exemption from minimum tax u/s 113 and withholding tax/advance tax, the following clause may be added in the clause (11A) of Part IV of Second Schedule to the Income Tax Ordinance, 2001:

"The provisions of minimum tax under section 113, withholding tax, advance tax under sections 147,148,150,151,153,155,156 and advance tax under Chapter XII of this Ordinance, shall not be applicable on State Bank of Pakistan (SBP), State Bank of Pakistan Banking Services Corporation (SBP BSC),National Institute of Banking and Finance (NIBAF), Deposit Protection Corporation (DPC), and any subsidiary, company or trust incorporated or established as subsidiary of State Bank of Pakistan."