No tax on offshore banking profit

The offshore banking unit has exempted from tax on the profit or interest earned by deposit.

This was revealed in a notification issued by the National Board of Revenue (NBR) on Monday (April 22). This order will come into effect immediately, the notification said.

This exemption is granted by virtue of sub-section (2) of section 76 of the Income Tax Act, 2023.

It states that any tax exemption provided in any other law shall not be effective until the NBR issues a notification regarding the exemption through official notification.

Earlier, the Financial Institutions Division of the Ministry of Finance prepared the draft of the Offshore Banking Act 2024.

However, the views of NBR as a stakeholder were ignored in the draft provision. It is learned that a representative of the National Board of Revenue (NBR) objected to the income tax proposal during a joint consultation meeting held with stakeholders before the approval of the draft of the Offshore Bank Act 2024. That objection was accepted only as an opinion, not taken into account.

Later, on behalf of the Financial Institutions Department of the Ministry of Finance, the NBR asked for its opinion on the clause related to 'exemption from taxes and duties' of the draft law. After that the opinion has been sent by the Income Tax Division of NBR.

In the opinion, the National Board of Revenue has requested to replace the interest or profit payable by the offshore banking unit to the depositors or foreign lenders in offshore banking business subject to the issuance of government notification.

Clause 13(a) of the Draft Law on Offshore Banking states that no income tax or any other direct or indirect tax shall be levied on the interest or profit earned by the offshore banking unit in offshore banking business.

Earlier, after the introduction of the public pension scheme, the concern over tax exemption started. As per the Pension Schemes Act, the scheme money is tax exempt. However, public pension schemes were not included in the list of sectors exempted under the Income Tax Act.

Later, NBR exempted public pension schemes by issuing SROs.
Note that offshore banking is a separate banking service within the bank. Offshore banking offers opportunities to lend to foreign companies and collect deposits from foreign sources. Offshore banking accounts in foreign currency instead of local currency. No bank regulations apply to offshore banking. Only the profit and loss account is added to the bank's core profit.