Karachi, July 27, 2023 – The Federal Board of Revenue (FBR) has provided clarification on the recently introduced additional tax on windfall profits, aiming to address concerns and shed light on the amendments made through the Finance Act, 2023 to the Income Tax Ordinance, 2001.
In a bid to enhance revenue generation and promote equity in the tax system, the FBR issued Circular No. 2 of Income Tax on July 26, 2023, outlining the key provisions of the new tax policy.
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According to the FBR, the Finance Act, 2023 has incorporated a new section, 99D, in the Income Tax Ordinance, which specifically deals with the imposition of an additional tax on windfall profits and gains of any company operating in Pakistan.
Under this new section, the Federal Government has been granted the authority to determine the applicable tax rate, which cannot exceed fifty percent. Furthermore, the government can specify the sectors to which this section will apply and identify economic factors, including international price fluctuations, that may impact commodity prices in Pakistan or specific sectors of the economy. Additionally, the government can consider differences in income, profits, or gains due to foreign currency fluctuations.
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The FBR clarified that the scope, time, and payment of tax payable will be established through a notification in the official gazette. Moreover, the government can choose to include or exempt certain individuals or classes of persons, as well as any income or classes of income, from the application of this section through subsequent notifications.
To ensure transparency and parliamentary oversight, all notifications issued by the Federal Government under this section must be presented before the National Assembly within 90 days of their issuance or by 30th June of the financial year, whichever comes earlier.
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The newly introduced section also brings corresponding amendments to the Fourth Schedule, Fifth Schedule, and Seventh Schedule, which pertain to Insurance companies, Oil and Gas Exploration companies, and Banking companies, respectively.
It is important to note that this additional tax will apply to the last three preceding tax years, starting from the tax year 2023 and onwards.
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The FBR’s move to introduce an additional tax on windfall profits seeks to create a fairer tax regime and generate much-needed revenue for the government. However, it remains to be seen how various sectors and companies will be affected by this measure and what impact it will have on the overall economy. Businesses and stakeholders are encouraged to carefully review the circular and consult with tax experts to ensure compliance with the new tax regulations.
