Banking Business Chapter- 27
ii. reversal of “bad debts” classified as “doubtful” or “ loss” are taxable as the respective
provisions have been allowed under this clause; and
iii. with effect from tax year 2020 and onward; reversal of “bad debts” classified as “
loss” are taxable as the respective provisions have been allowed under this clause.
(d) Bad debts classified as “sub-standard” or "doubtful” shall be inadmissible expense.
(e) Provision of sub-rule (d) shall apply as it is whether the taxpayer reclassifies any addition made
under sub-rule (d) as “loss”.
(f) If a taxpayer reclassify any addition made under sub-rule (d) in subsequent year as recoverable
then a deduction shall be allowed in computing the taxable income.
(g) The adjustments made on account of Financial Instruments (IAS 39) and Investment Property
(IAS 40) shall be excluded in computing the taxable income.
Explanation.─ For the removal of doubt, it is clarified that nothing in this sub-rule shall be so
construed as to allow a notional loss, or charge to tax any notional gain on any investment
under any regulation or instruction unless all the events that determine such gain or loss have
occurred and the gain or loss can be determined with reasonable accuracy.
(h) An adjustment shall be made for exclusions from income on account of paragraph (g) for
determining the cost of related item in the financial statement in the year of disposal of such
item or asset or the discharge of liability, as the case may be.
Explanation.— For removal of doubt, it is clarified that nothing contained in this Schedule shall
be so construed as to restrict power of Commissioner, while conducting audit of the income tax
affairs under section 177, to call for record or such other information and documents as he may
deem appropriate in order to examine accounts and records to conduct enquiry into
expenditure, income, assets and liabilities of a banking company and all provisions of this
Ordinance shall be applicable accordingly.";(2) 1. Where the deduction allowed for any expenditure other than bad debts or any liability, for
which the deduction was allowed, remains unpaid for 3 years from the tax year in which the
deduction was allowed, shall be added in taxable income in the 1st tax year following the end of
3 years.
- A deduction shall be admissible only when the actual payment for the unpaid liability is made.
- When the shares of listed company are disposed of within 1 year from the date of acquisition
and results in loss then the loss can be adjusted against the “Business Income”. Un-adjusted
loss shall be carried forward to the following tax year and set off against capital gain. Loss shall
be carried forward for maximum of 6 years.
(3) Treatment for Shariah compliant banking
- Any special provisions or rules by State Bank of Pakistan for Shariah Compliant Banking shall
not be taken into account for income tax purposes. - A statement, certified by the auditors of the Bank, shall be attached to the return of income to
disclose the comparative position of transaction as per Islamic mode of financing and as per
normal accounting principles. Adjustment to the income of the company on this account shall
be made according to the accounting income for purpose of this schedule.
(4) Head office expenditure
- In case of foreign banks head office expenditure shall be allowed as deduction as per the
following formula, Gross receipt of permanent establishment in Pakistan / World gross receipts
x Total Head Office expenditure. - The head office expenditure u/s 105(3) means any expenditure executive or general
administration expenditure incurred by non-resident person outside Pakistan for the permanent
establishment of the person, including
(a) Any rent, local rates and taxes excluding any foreign income tax, current repairs, or
insurance against risks of damage or destruction outside Pakistan;