Islamabad High Court stays additional tax collection from Pakistani banks
Government imposed additional tax on banks for failing to advanced-to-deposit ratio
The Islamabad High Court has stayed the Federal Board of Revenue (FBR) from collecting an additional PKR 197 billion tax from banks for failing to meet the advance-to-deposit ratio (ADR).
Judge Babar Sattar directed the FBR not to take any coercive action against the banks based on calculations using rule 6C(6A) of the 7th Schedule of the Ordinance.
Dr Farogh Naseem, the advocate for the banks, argued that the tax department was retroactively taxing income from investments in federal government securities.
These investments had not matured during the financial year, making the tax application unfair.
The court's decision temporarily suspends the government's tax collection based on ADR until a final verdict on the banks' petitions.
Muneer Kamal, CEO of Pakistan Banking Association (PBA), confirmed the court will hear the case on December 3, with no specified date for the final order.
Pakistan government imposed the tax in the 2022 budget to boost business and lending but suspended it in 2023, before reinstating it in January 2024.
The normal income tax rate for banks is 39%. However, if a bank's gross ADR is up to 40%, the tax rate is 55%; for an ADR of 40-50%, the rate is 49%; and if the ADR exceeds 50%, the normal 39% rate applies.
Six Pakistani banks, including Habib Metropolitan Bank, Faysal Bank, Allied Bank, Meezan Bank, Bank of Punjab, and Bank Alfalah, face an additional 10% tax for not meeting the central bank's 50% ADR requirement. Ten other banks, including Habib Bank and National Bank of Pakistan, face a 16% additional tax due to ADRs below 40%.
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