Pakistan forms committee led by Ishaq Dar to address advances to deposit ratio issue

Pakistan has set up a high-powered 9-member committee led by Deputy Prime Minister Ishaq Dar to tackle the Advances to Deposit Ratio (ADR) issue. This issue has become a hot topic as the Federal Board of Revenue (FBR) struggles to meet its revenue collection target.

In the current year's budget, the Pakistan government imposed an additional tax of 10% and 16% if banks' ADR is less than 50% and 40%, respectively.

Last November, the Islamabad High Court 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.

In November 2024, banks also imposed a new fee of 5% to 6% on depositors to avoid paying the additional tax.

According to the FBR, the committee, led by the Deputy Prime Minister, will work to resolve the ADR issue. Other committee members include the Minister for Finance & Revenue, the Law Minister, the Minister of State for Finance & Revenue, the Attorney General of Pakistan, the Finance Secretary, the Chairman of the FBR, the Governor of the State Bank of Pakistan, and Asma Hamid.

The committee's Terms of Reference (ToRs) include reviewing the existing legal framework of fiscal measures related to the ADR of the banking sector. Additionally, the committee will discuss alternative fiscal schemes to tax bank profits from investments in government securities while engaging with the banking sector to develop a consensus on the way forward.

By December 31, 2024, the committee will give recommendations for an optimal solution to ensure the realization of government revenues and suggest non-fiscal regulatory measures to increase advances to the private sector.