Karachi, November 29, 2023 – The Federal Board of Revenue (FBR) is gearing up for stringent measures to recover windfall tax from banks as the payment deadline looms.
Sources within the FBR have disclosed that banks are obligated to settle their tax liability on windfall income from foreign exchange transactions by November 30, 2023.
The FBR has formulated this plan following the absence of a stay granted by higher courts, despite banks contesting the levy. Notably, a lone bank reportedly managed to secure a stay against payment from the Islamabad High Court. The FBR had initially estimated a significant tax collection of Rs 35 billion from the windfall levy.
This development comes after the introduction of additional tax burdens on banks earlier this month, with a 40% levy imposed on windfall income profits from foreign exchange transactions. The imposition is in accordance with Section 99D of the Income Tax Ordinance, 2001, approved by the federal cabinet in a meeting chaired by Caretaker Prime Minister Anwaar-ul-Haq.
The Finance Act, 2023, introduced the new Section 99D, granting the government the authority to tax windfall income profits and gains of banks. The move aims to adapt to the changing economic landscape and bolster government revenue streams.
Commercial banks, during the calendar years 2021 and 2022, witnessed robust profits due to fluctuations in the foreign exchange market. In response to substantial profits amid the devaluation of the Pakistani Rupee (PKR), the government initiated an investigation. The State Bank of Pakistan (SBP) identified irregularities in foreign exchange transactions by banks, leading to the imposition of a tax on windfall income.
To facilitate tax collection, the FBR issued SRO 1588(I)/2023, outlining the calculation method under Section 99D of the Income Tax Ordinance, 2001. All banks were duly notified of the deadline for tax payment, with the FBR eager to ensure compliance.
It is noteworthy that the FBR is striving to collect the specified amount to boost revenue during the first five months (July – November) of fiscal year 2023-2024, just ahead of the crucial executive board meeting of the International Monetary Fund (IMF) scheduled for December 7, 2023.
The impending IMF board meeting is anticipated to approve a tranche of $700 million as part of the $3 billion Stand-By Arrangement (SBA). Revenue collection is a pivotal component of the IMF program, and surpassing the revenue target would secure the continuation of the program without additional conditions, according to FBR sources.
As the clock ticks toward the deadline, the financial landscape awaits the outcome of these tax recovery efforts, impacting both the banking sector and the broader economic stability of the country.