Karachi, December 31, 2024 – The Federal Board of Revenue (FBR) is poised to collect an estimated Rs 70 billion from the banking sector after the promulgation of the Income Tax (Amendment) Ordinance, 2024, a significant development aimed at bolstering revenue collection.
President Asif Ali Zardari signed the ordinance into law late Monday night, introducing pivotal changes to the Advance Deposit Ratio (ADR) of banks. This measure is expected to generate substantial revenue, addressing shortfalls in the FBR’s tax collection efforts.
The ordinance imposes a 44% tax on banking companies for the tax year 2025, marking a notable adjustment in the taxation structure. This rate will taper slightly in subsequent years, reducing to 43% for the tax year 2026 and 42% for the tax year 2027 and beyond. These revisions in the tax framework are designed to streamline fiscal contributions from the banking sector, a critical component of the national economy.
The Income Tax (Amendment) Ordinance, 2024 also amends the First Schedule and Seventh Schedule of the Income Tax Ordinance, 2001. It delineates tax rates across various company categories:
• Banking Companies: 44% (2025), 43% (2026), and 42% (2027 onward).
• Small Companies: 20%.
• Other Companies: 29%.
A key aspect of the ordinance pertains to the computation of gross advances and deposits. For tax purposes, these are defined as the amounts reflected at the end of the accounting period in the annual audited accounts. The ordinance further stipulates that from the tax year 2025 onward, profits and gains of banking companies will be subjected to tax rates specified under Division II, Part I, of the First Schedule.
The FBR anticipates receiving the Rs 70 billion from banks by December 31, 2024, offering a critical boost to the government’s efforts to meet its revenue targets. Analysts have noted that this measure, though robust, underscores the increasing reliance on the banking sector to bridge fiscal gaps.
This development highlights the government’s proactive stance in addressing tax shortfalls, leveraging targeted legislative measures to ensure enhanced fiscal contributions from key economic sectors. The ordinance is expected to not only bolster revenue streams but also reinforce fiscal discipline within the banking industry.