Karachi, March 6, 2025 – A group of banks in Pakistan is preparing to approach the Supreme Court to challenge the recent Sindh High Court decision regarding the windfall tax imposed on foreign exchange income.
This move comes as banks seek legal recourse against what they deem an unfair tax burden.
According to the annual report for 2024, Habib Bank Limited (HBL) revealed that in 2023, a windfall tax was levied on the foreign exchange earnings of banks for the years 2021 and 2022. For HBL alone, the calculated tax liability for these two years amounts to Rs 4,865 million, for which the tax department has already issued a recovery notice.
In response, the bank had initially filed a Constitutional Petition in the Sindh High Court, contesting the legality of S.R.O 1588 (l)/2023, issued on November 21, 2023, which imposed the windfall tax. The court had temporarily suspended the operation of the S.R.O pending further hearings. Similar relief was granted to other banks by the High Courts of Lahore, Islamabad, and Peshawar.
READ MORE: SHC Upholds Windfall Tax, Denies Suspension Request
However, in a recent ruling, the Sindh High Court dismissed the banks’ petition, effectively upholding the tax imposition. In light of this, the banks now plan to escalate the matter to the Supreme Court, challenging the decision on constitutional, legal, and procedural grounds. Based on legal advice, the banks remain optimistic that their stance will ultimately prevail, and therefore, no provision for this tax liability has been made in their financial statements.
As per the annual financial statement, the income tax returns of HBL have been duly submitted up to the accounting year 2023. As per the Income Tax Ordinance, 2001, these returns are treated as deemed assessments under Section 120. However, the Income Tax Department has made amendments to HBL’s prior assessments, covering up to 2022. The key areas of dispute include gains from the translation of net investment in foreign branches, taxable income subject to an enhanced rate, retirement benefits, and provisions against loans, advances, investments, and other assets.
READ MORE: Banks Pay Rs 25 Billion Windfall Tax After Petition Dismissal
These taxation matters are currently under review at different levels of appeal, with the bank’s management, in consultation with its tax advisors, confident of a favorable outcome. Similarly, the income tax returns for the bank’s branches in Azad Kashmir, Gilgit-Baltistan, and overseas jurisdictions have been filed up to the 2023 accounting year, with returns in these regions also treated as deemed assessments under the same ordinance.
Furthermore, domestic and overseas subsidiaries of banks have submitted their income tax returns to their respective tax authorities for the 2023 accounting year, as legal battles over tax assessments continue to unfold. The outcome of this case in the Supreme Court could have far-reaching implications for the banking sector and its future tax obligations.