The amendment proposes to lay down separate rules in a new Schedule (replaced Seventh Schedule) for computation of profits and gains of banking companies which would be applicable from tax year 2008 onwards.  Salient features of the proposed new Seventh Schedule to the Income Tax Ordinance, 2001 are:

• The banking company will be entitled to depreciation, initial, allowance, and amortization in accordance with Section 22, 23 and 24.
• Provisions for classified advances and off balance sheet items shall be allowed, if claimed in accounts and certified by the external auditors that they are in line with Prudential Regulations (PR).
• The amount claimed as expense on account of ‘irrecoverable debts’ classified as “sub-standard” under PR would not be allowed. Whereas, if such deductions will be later reclassified as ‘doubtful’ or ‘loss’ under the PR or reclassified as ‘recoverable’ than the deduction would be allowed later.
• Any adjustment in accounts to comply with IAS 39 and 40 will be excluded during the computation of income.
• If any liability for expenditures allowed is not be paid within three years from the date of its allowance, the unpaid liability will be chargeable to tax in the first year after the three years. However, on subsequent payment of such liability, these will be allowed.
• Loss on sale of shares of listed companies will only be adjusted against gain on sales of share of listed companies.
• Any special treatment for ‘Shariah Compliant Banking’ approved by SBP will not be provided for any reduction or addition to the income and income under normal accounting principles will be taken for calculation of chargeable income.
• Head Office Expenditure will be allowed in proportion of gross receipts in Pakistan to world gross receipts, only if these are charged in the accounts.
• The banking companies will pay advance tax in twelve equal installments which will be due on 15th of every month.
• Provisions of withholding tax would not be applicable to the banking companies.
• Tax rate for business income would be 35% while for dividends and capital gains the rate would be 10%. However, if shares are disposed of within one year of their acquisition then these gains will be taxed at 35%.
• Provisions of Section 113 for minimum tax will be applicable to the banking companies.
• Exemptions and concessions under Second Schedule will not apply to a banking company.
• The provisions of group relief laid down in Section 59B will only apply if the holding and subsidiaries companies are banking companies.
• The banking companies will be able to avail benefits of Section 59AA after approval of SBP.