Karachi, February 28, 2024 – Bank Alfalah, one of Pakistan’s prominent banking institutions, has set aside a substantial sum of Rs 3.6 billion as a precautionary measure in anticipation of potential windfall tax payments.
The allocation comes as the bank, along with others, challenges the imposition of an additional windfall tax of 40 percent on foreign exchange income, as outlined in Section 99D of the Income Tax Ordinance, 2001.
In response to the tax levy issued by the Federal Board of Revenue (FBR) for the accounting years 2021 and 2022, Bank Alfalah, along with peers, has filed a petition in the Sindh High Court. The legal challenge has resulted in the issuance of a stay order, providing temporary relief to the banks. Similar cases have been filed by other banks in the Islamabad and Lahore High Courts, where stay orders have also been granted.
In its official report, Bank Alfalah clarified, “However, the Bank has recorded a prior year charge of Rs. 3.6 billion in these unconsolidated financial statements on account of prudence.”
The bank’s annual report on tax affairs disclosed that income tax assessments up to and including the tax year 2023 have been finalized. Nevertheless, certain addbacks made by tax authorities for various assessment years are under appeal with the Commissioner of Inland Revenue (Appeals), Appellate Tribunal Inland Revenue (ATIR), High Court of Sindh, and the Supreme Court of Pakistan.
Issues raised by tax authorities for tax years 2008, 2014, 2017, and 2019 to 2023 include default in payment of WWF, allocation of expenses to dividend and capital gains, dividend income from mutual funds not being considered income from business, and disallowance of leasehold improvements resulting in a tax demand of Rs. 764.870 million (net of relief provided in appeal as of December 31, 2022: Rs. 639.939 million). The bank has filed an appeal, expressing confidence that these matters will be decided in its favor, hence, no provision has been made.
Bank Alfalah has also faced demands from provincial tax authorities for the period from July 2011 to December 2020, where a sales tax on banking services and a penalty totaling Rs. 763.312 million were imposed. Appeals against these orders are pending before Commissioner Appeals, with the bank confident that these matters will be settled in its favor through the appellate process.
Moreover, the bank received an order for accounting year 2016, demanding sales tax and penalty of Rs. 5.191 million. An appeal is pending before Commissioner Appeals. Similar orders for the accounting years 2017 and 2018, with tax demand of Rs. 11.536 million, have been issued in the current year. The bank intends to file appeals after obtaining advice from tax consultants. As of now, no provisions have been made against these orders, with the management optimistic about favorable resolutions through the appellate process.
