BANKING COMPANIES – TAX CHARGE ON IRRECOVERABLE DEBTS

The Institute has been approached by a number of practicing members seeking opinion regarding the legal status of the clarification issued by the Federal Board of Revenue (FBR) vide their letter F. No. 4(l)ITPI2008-49 dated 23 December 2009 (copy attached) addressed to the Institute.

It may be recalled that the above matter was taken up by the Institute and Pakistan Banking Association (PBA) with the FBR since last one year and a number of representations were made in this regard. ICAP also issued Circular no. 7 dated July 28, 2009 advising its members that reversal of deferred tax assets may not be made in the interim financial statements, as the matter was expected to be resolved by the FBR in the manner suggested by the Institute and the PBA before December 31, 2009. After several discussions and exchanges of correspondence, the FBR finally agreed to the aforesaid recommendation and has issued the above letter.

As mentioned in the letter the FBR has decided to insert Rule 8A in the Seventh Schedule to the Income Tax Ordinance, 2001 which would facilitate the banks in the preparation of their annual financial statements and income tax returns for the year 2009.

You would appreciate that the process of amending the Schedule requires a due process at the FBR, which, we understand, has already commenced. Accordingly, the members of the Institute may consider the communication of the Institute in the spirit it has been made and take cognizance of the same as a reasonable indication of the rule as would stand amended in due course.

Members are advised to take note of the same.