Islamabad, November 22, 2023 – The Federal Board of Revenue (FBR) has issued a crucial notification on Wednesday, outlining the process for the computation of windfall tax on banks.
The FBR’s move, encapsulated in SRO 1588(I)/2023, elucidates the method of calculation under Section 99D of the Income Tax Ordinance, 2001.
The notification issued by the FBR states that the federal government has, with satisfaction, taken the following steps:
(a) Specified banking companies as the designated sector for Section 99D purposes.
(b) Determined the method for computing windfall income, profits, and gains, in accordance with the provisions outlined in paragraph 2.
(c) Specified the tax rate under Section 99D at a substantial forty percent.
(d) Defined the scope of windfall income, profits, and gains, aligning with the computations detailed in paragraph 2 for the calendar years 2021 and 2022, corresponding to tax years 2022 and 2023, respectively.
(e) Appointed November 30, 2023, as the deadline for the payment of additional tax under Section 99D. The Commissioner, with recorded reasons, may extend this period by up to fifteen days upon a written application for an extension by the taxpayer.
(f) Mandated that the additional tax payment be made in the federal treasury through a prescribed challan or computerized payment receipt.
Calculation Methodology
The windfall income, profits, and gains are to be computed using the following formula:
Windfall Income, profits, and gains for TY 2022 (CY 2021) = [Fx Income2021 – AM2022]
Windfall Income, profits, and gains for TY 2023 (CY 2022) = [Fx Income2022 – AM2023]
Where:
i. TY = Tax Year;
ii. CY = Calendar Year;
iii. AM2022 = [Fx Income2015 + Fx Income2016 + Fx Income 2017 + Fx Income 2018 + Fx Income 2019 + Fx Income 2020] / 6;
iv. AM2023 = [Fx Income2016 + Fx Income2017 + Fx Income 2018 + Fx Income 2019 + Fx Income 2020 + Fx Income 2021-Windfall Income CY2021] / 6;
v. Fx Income2015, Fx Income2016, Fx Income2017, Fx Income2018, Fx Income2019, Fx Income2020, Fx Income2021, Fx Income2022 means foreign exchange income as disclosed in the financial statements or notes thereto for the calendar years relevant to tax year 2016, tax year 2017, tax year 2018, tax year 2019, tax year 2020, tax year 2021, tax year 2022, and tax year 2023.
Provisions and Exclusions
Two key provisions are outlined: If windfall income for CY 2021 relevant to TY 2022 is negative, its value for the purpose of computation of AM2023 shall be considered as zero. Additionally, in the computation of AM2022 or AM2023, any disclosed loss under the head of foreign exchange income in any calendar year is to be excluded, along with the exclusion of the number of year(s) used in the denominator of the formula.
The FBR’s comprehensive notification establishes a framework for the taxation of windfall profits, providing clarity on methodologies and deadlines while ensuring compliance with legal provisions.
