Businessmen have voiced concern that the withdrawal of tax exemptions granted to non-banking financial institutions (NBFIs) and modarabas will have a disastrous impact.
In a statement on Friday, Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Mian Nasser Hyatt Magoo said that under the prevailing challenging circumstances, the elimination of tax exemptions for the NBFIs and modarabas would badly affect their operations.
The Federal Board of Revenue (FBR) submitted a bill to the National Assembly, seeking withdrawal of tax exemptions available under Clause 100 of the Second Schedule of Income Tax Ordinance, 2001 to the NBFIs and modarabas.
Tax exemptions are provided in Section 37 of the Modaraba Companies and Modaraba (Floatation and Control), Ordinance 1980.
The FPCCI president underlined that the NBFI and modaraba sectors had vast outreach as they facilitated small and medium enterprises (SMEs), an area where the commercial banking sector remained cautious.
While incentives and concessionary schemes of the State Bank of Pakistan are available to other sectors, the NBFI and modaraba sectors may not receive them. He pointed out that the NBFI and modaraba association also opposed the amendments to the Second Schedule of Income Tax Ordinance 2001.
“On the one hand, the amendments will not bring any improvement to the revenue collection and on the other, they will disturb the services and development of this sector,” he said.
At present, nearly 26 modarabas are operational in Pakistan with equity of about Rs20 billion and asset base of over Rs40 billion.
“They are facilitating nearly 90,000 small and medium-sized shareholders,” he said.
Magoo said that the withdrawal of tax exemptions would damage the progress of NBFIs and modarabas, which were facilitating and serving small and medium-sized investors and promoting Islamic finance.
In 2019, assets of the modaraba sector were worth Rs53.9 billion, according to the NBFI and Modaraba Sector Country Report 2020, issued by the NBFI and Modaraba Association of Pakistan in January 2021.
The financial sector of Pakistan comprised two major components – the banking sector and the non-banking sector, said NBFI and Modaraba Association of Pakistan Chairman Bashir A Chowdry in the report.