Pakistan government collects PKR 23 billion in windfall tax from banks

Pakistan government has collected PKR 23 billion ($81.8 million) from 16 banks in a single day by maintaining the windfall tax, following a decision by the Sindh High Court (SHC).

The Federal Board of Revenue (FBR) successfully gathered the amount from the banks, according to officials.

SHC has dismissed petitions challenging the enforcement of Section 99D of the Income Tax Ordinance 2001 and SRO 1588(I) of 2023, which relates to the imposition of the windfall tax.

An analyst at InterMarket Securities said the caretaker federal cabinet under section ‘99D’ of the Finance Act 2023, approved a 40% tax on windfall profits of banks, which they earned from foreign exchange transactions in 2021 and 2022.

This was in keeping with the IMF’s demands for enhanced tax collection. To recall, Pakistan banks made large fx gains on the tailcoats of severe exchange rate volatility in CY21/22 – contribution of Fx income to total income exceeded 6% in CY22 from an average of 3.5%."This milestone reflects the strong and wise leadership of Prime Minister Shehbaz Sharif, the active policies of the Finance Minister, and the efforts of the FBR in ensuring a fair and equitable tax system," the Prime Minister's office noted in a statement.

The government has ensured a fair tax system without burdening the common man, addressing long-standing economic irregularities that have disproportionately affected low-income groups.

Elite institutions have profited extraordinarily for decades, but under Prime Minister Sharif's leadership, the government has introduced fair taxes on extraordinary benefits arising from external factors, a system practiced worldwide.

With this success, the government is now focusing on other stalled taxes on the elite, including the super tax, value tax (CVT), tax on undistributed reserves, and tax on inter-corporate dividends.

This collection signifies a transformation in Pakistan's taxation framework to ensure equity, transparency, and accountability.

The government is committed to expanding the tax base, reducing reliance on indirect taxes, and promoting sustainable economic growth through responsible policy-making, according to the Prime Minister's office.

Prime Minister Sharif has approved the FBR's transformation plan for tax collection management. This plan, developed by the FBR with the collaboration of economic and technological experts, aims to improve tax collection without hindering economic development and to provide convenience to taxpayers.

The FBR will take strict measures against tax evasion to ensure timely tax payments and prevent fraud.

Despite these efforts, the FBR missed its revenue collection target of nearly PKR 85 billion in January.

The overall shortfall in revenue collection between July and January of the current fiscal year reached PKR 468 billion, presenting a significant challenge for the FBR to cover the gap in the remaining months.