Karachi, October 28, 2024 — Meezan Bank has expressed strong confidence in winning its ongoing tax dispute with the Federal Board of Revenue (FBR), which involves the disallowance of expenses tied to the now-defunct HSBC Bank Middle East – Pakistan Branch.
Meezan Bank, in a report, outlined the key areas of contention that the FBR raised while amending previous tax assessments, notably for the tax year 2023.
According to Meezan Bank’s statement, the Income Tax Department had revised deemed assessment orders for multiple prior years, challenging several expense categories. These disallowed items predominantly involved allocations tied to dividend and capital gains, provisions for Islamic financing and related assets, as well as provisions for investments and other miscellaneous assets.
The amended tax order for the 2015 tax year presented additional complexities, including the taxability of gains on bargain purchases, non-adjustment of losses associated with HSBC Bank Middle East – Pakistan branches, and the imposition of a super tax.
Despite the amendments and heightened tax liabilities, Meezan Bank has gained some ground in its appeal efforts. The Appellate Tribunal Inland Revenue (ATIR) ruled in favor of Meezan Bank on various issues, offering a partial victory in the prolonged legal skirmish. However, both the bank and the FBR have since filed references with the High Court of Sindh, seeking a conclusive ruling on these unresolved matters.
The crux of Meezan Bank’s optimism lies in its legal counsel’s assessment. After consulting with its tax advisors, the bank’s management remains assured of a favorable outcome. Consequently, Meezan Bank has opted not to set aside provisions in its financial statements for these tax liabilities, trusting the court will ultimately rule in its favor. The potential liabilities under dispute are significant, totaling Rs 1,096 million in gains on bargain purchases and Rs 706 million in HSBC-related losses.
Meezan Bank’s stance in this legal dispute underscores a critical issue facing the banking industry: the FBR’s increasingly assertive stance on complex tax adjustments. The FBR’s recent moves signal a stricter approach to tax governance, with an eye on high-profile financial institutions as potential sources of revenue.
This case holds broad implications for banking practices in Pakistan, especially as Islamic finance and international assets become more integrated into local portfolios. A favorable ruling for Meezan Bank could set a precedent, reinforcing the institution’s confidence while also shaping future FBR assessments and interpretations of complex tax items across the industry.