Charter of the Economy Table 24.7: Sectoral Distribution of Bank Advances to Private Sector(as of December 2020) (Rs in Billion) Stock of Advances% Share Agriculture 292 5.3 Manufacturing and Mining 3453 62.9 Electricity and Gas 532 9.7 Construction 145 2.6 Wholesale and Retail Trade 460 8.4 Transportation 119 2.2 Communication 148 2.7 Personal Services 341 6.2 TOTAL 5490 100.0 Source: SBP Currently, there are no binding constraints to development of finance and insurance in Pakistan. Levels of profitability are high. From 2015 to 2019, the average return on equity of banks has been over 14.5 percent. Recommendations There is a dire need for reducing the‘crowding out` of credit to the private sector and of diversification of credit to more sectors beyond manufacturing and to smaller borrowers. Taxation of the Banking Sector: The corporate income tax rate on commercial banks was 60 percent in the early 90s. This was drastically brought down to 35 percent in the Musharraf Era. Currently, the tax rate is 29 percent and there is a supertax of 4 percent. There is a case for raising the tax rate to 40 percent with a supertax of 5 percent, in view of the low risk in investing in Government securities and shares, which now constitute over 44 percent of the assets of the banking system. However, fiscal incentives may be offered as follows: i) If the growth rate of bank advances to the private sector of a particular commercial bank exceeds the growth rate of bank deposits then it is entitled to a tax credit of 5 percent on the additional advances above the growth rate of deposits. For example, if deposits grew by 12 percent and the total advances rise from 200 billion to 235 billion, then the amount liable for a tax credit is Rs 11 billion. With the tax credit at 5 percent, the reduction in tax liability is Rs 0.55 billion. 238