Islamabad, November 30, 2023 – The Islamabad High Court (IHC) has issued a stay order on Wednesday, suspending the implementation of a one-off 40 percent tax recently imposed by the government on bank profits derived from foreign exchange transactions over the past two years.
The court’s decision effectively halts the application of a statutory regulatory order (SRO) until December 8, 2023.
The contentious tax, introduced through Section 99D of the Income Tax Ordinance 2021 by the Finance Act 2023, faced legal intervention as the Islamabad High Court responded to concerns raised by banks. The Prime Minister’s Office (PMO) revealed that the Federal Board of Revenue (FBR) proposed the tax, and the cabinet subsequently approved the measure.
The move to impose a windfall tax followed public criticism of banks accumulating substantial profits, totaling Rs110 billion, from speculative rupee-dollar trades during 2021 and 2022. Contrary to analysts’ expectations, the imposition of the tax was met with surprise, as it was perceived as an unconventional step by the government. Proponents argued that the tax could contribute over Rs40 billion to the national exchequer.
Justice Sardar Ejaz Ishaq Khan of the IHC, presiding over the case, issued notices to the secretary of the revenue division and other relevant parties for the upcoming hearing. The court’s intervention came in response to a writ petition filed by Askari Bank Ltd against the SRO issued on November 21, which mandated a 40 percent tax on banks’ windfall income, calculated according to the formula outlined in the SRO.
During the proceedings, the FBR’s lawyer contended that the legislation would remain in effect until declared ultra vires. However, Justice Khan noted that the petitioner’s lawyer correctly highlighted that the interim relief sought pertained to the SRO—an executive act, not legislation. Consequently, the judge concluded that the prima facie case, along with considerations of balance of convenience and irreparable loss, favored the petitioner.
In the court order, Justice Khan stated, “The foregoing submissions, therefore, demonstrate not only a prima facie case but also that the ingredients of the balance of convenience and irreparable loss operate in favor of the petitioner. Resultantly, the operation of the impugned SRO shall remain suspended till the next date of hearing.”
The court’s decision to temporarily halt the tax on windfall income signifies a legal reprieve for banks, providing an opportunity for further deliberation on the contentious matter. As the legal proceedings unfold, stakeholders await the next hearing scheduled for December 8, 2023, to gain insights into the future of this tax measure and its potential implications on the banking sector.
