Govt okays 40% tax on banks windfall income
ISLAMABAD: In 2021 and 2022, the Federal Board of Revenue (FBR) will publish a Statutory Regulatory Order (SRO) levying an additional 40% tax on banks windfall revenue from foreign exchange operations.
Experts in taxation state that the FBR SRO will elucidate the tax collection process, including the time frame, declaration, and bank recovery.
The banks already pay between 40 and 45 percent tax on their taxable income, which includes money from foreign currency transactions, according to the tax specialists. With the consent of the federal government, a new tax under section 99D of the Income Tax Ordinance, 2001 (Additional tax on certain income, profits, and gains) is being imposed on top of previously paid taxes.
The FBR SRO will clarify whether the additional tax would be applicable for the period of the tax year 2022 (January 2021 to December 2021) and tax year 2023 (January 2022 to December 2022).
A new section 99D of the Finance Act of 2023 provides for the levy of additional tax on windfall income profits and gains of any individual who is not a firm.
This section gives the federal government the authority to set any rate that does not exceed fifty percent, designate any sector or sectors for which this section will apply, identify any economic factor or factors, such as fluctuations in international prices that affect the price of commodities in Pakistan or any other sector of the economy, or differences in income, profit, or gains due to foreign currency fluctuations, and specify the scope, timing, and payment of taxes that must be paid.
Additionally, the federal government may choose to exclude any individual or group of individuals, as well as any income or classes of income, from the provisions of this section by publishing a notice in the official gazette.
The Fourth Schedule, Fifth Schedule, and Seventh Schedule—which deal with insurance businesses, banking firms, and oil and gas exploration companies, respectively—have also included the appropriate revisions.
As per the Finance Act, 2023 section "99D. Additional tax on certain income, profits and gains," in addition to any taxes that may have been charged, paid, or payable under this Ordinance provisions, an additional tax will be imposed on any individual or company that has income, profits, or gains that have arisen as a result of any economic factor or factors that resulted in windfall income, profits, or gains for any of the last three tax years prior to the tax year 2023 and beyond.
By publishing a notice in the official gazette, the federal government may:
(a) designate the sector or sectors to which this section is applicable;
(b) ascertain windfall income, profits, or gains and economic factor or factors, such as fluctuations in international prices that impact the price of commodities in Pakistan or any other sector of the economy, or variations in income, profit, or gains due to fluctuations in foreign currency;
(c) give a percentage of such income, earnings, or gains that does not exceed fifty percent; 16
(d) specify in the notification the terms and conditions that apply to the amount, timing, and mode of payment of taxes due under this section;
(e) exempt any individual or group of individuals, as well as any income or class of income, from this section application, subject to the terms and conditions that may be mentioned in the notification.