ISLAMABAD: Finance Bill 2024 has proposed amendments in Seventh Schedule (Banking Schedule) of the Income Tax Ordinance pertaining to the non-performing loans in banking sector.
Under the Finance Bill 2024, former Chairman Federal Board of Revenue (FBR) Shabbar Zaidi explained, t any non-performing loan so classified in the financial statement of a banking company subject to tax under the Seventh Schedule as per IFRS 09 shall not be treated as an allowable expense. This provision is in contradiction with the primary concept of the Seventh Schedule where financial statements as furnished to the State Bank of Pakistan form the basis of determining the tax liability. Furthermore, there is adequate safeguard in other provisions of the Seventh Schedule to this effect.
There is no need to disturb the main theme of the Seventh Schedule where the financial accounts of the bank form the basis of determining the tax liability.
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Furthermore, the proposed insertion that only the amount treated as loss shall be allowed as deduction is again, against the primary theme of the Seventh Schedule and is apparently in contradiction of present rules, Shabbar Zaidi added.
A tax expert explained proposed amendments in Seventh Schedule of the Income Tax Ordinance. He said that the bad debts classified as ‘doubtful’, provision for advances, off-balance sheet items or any other financial assets classified as performing, under-performing or non-performing under any applicable accounting standard are proposed not to be allowed; whereas only bad debts classified as ‘loss’ pertaining to non-performing assets under the Prudential Regulations proposed to be allowed.
The provisions or expected credit loss for advances and off-balance sheet items or any other financial assets existing before or after January 1, 2023 under IFRS 9 proposed not be allowed as expense or deduction.
The Rule regarding inadmissibility of notional gain or loss under International Accounting Standards 39 and 40 proposed to be replaced by ‘any applicable accounting standard or policy or any guidelines or instructions of SBP’.
Copyright Business Recorder, 2024