Effective tax rate of Finance industry upon introducing Debt Repayment Levy
Effective tax rate of Finance industry will go up to 56.27%(from 50.30%) upon introducing Debt Repayment Levy (DRL).
As per the Finance Act No.35 of 2018, Debt Repayment Levy(DRL) will be introduced to the Finance industry. DRL will be charged on value addition calculated for the purposes of VAT on Financial services.
Accordingly 7% of value addition attributable to the supply of financial services shall be payable by licensed Commercial Banks, licensed Specialized banks and finance companies registered under the Finance Companies Act No. 78 of 1988 as DRL.
Let’s look at a simple calculation to understand how effective tax rate of finance industry is increased upon introducing DRL.
Interest Income | 100,000,000 | |||
Less Interest Expenses | (80,000,000) | |||
20,000,000 | ||||
Salary and other personnel Expenses | (5,000,000) | |||
Other expenses | (5,000,000) | |||
Profit Before FVAT, FNBT & DRL | 10,000,000 | |||
Add : Emoluments | 5,000,000 | |||
Value Addition Attributable to Financial Services for purpose of calculation of DRL | 15,000,000 | |||
Deduct:Debt Repayment Levy (7% on 15,000,000) | (1,050,000) | |||
Value Addition Attributable to Financial Services for FVAT & FNBT | 13,950,000 | |||
Assumed that, | ||||
1. All the income are received from the business of supplying financial services | ||||
2. All the expenses are allowable for income tax | ||||
3. The profit after tax will be distributed to the share holders in full. | ||||
4. Book Depreciation, Economic Depreciation and Capital Allowance will be same. | ||||
Income Tax | 8,950,000 | @ | 28% | 2,506,000 |
VAT on Financial Services | 13,950,000 | @ | 15/117 | 1,788,462 |
NBT on Financial Services | 13,950,000 | @ | 2/117 | 238,461 |
Debt Repayment Levy | 15,000,000 | @ | 7/100 | 1,050,000 |
Crop Insurance Levy | 4,417,077 | @ | 1% | 44,170 |
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|
|
|
|
Total Taxes | 5,627,094 | |||
Effective Tax Rate | Total Taxes | @ | 100 | |
Profit Before Tax | ||||
5,627,094 | @ | 100 | 56.27% | |
10,000,000 | ||||
In addition to above taxes, withholding tax of 14% will be applicable on distribution of dividends.
***As per the current law,DRL will be allowed for Income Tax,FVAT & FNBT.
