Islamabad High Court (IHC) halts implementation of a 40% windfall
tax on banks' profits
The Islamabad High Court (IHC) has temporarily halted the
implementation of a 40% windfall tax on banks' profits from foreign exchange
transactions over the past two years. This suspension, effective until December
8, responds to a statutory regulatory order (SRO) linked to Section 99D of the
Income Tax Ordinance 2021, introduced through the Finance Act 2023.
The Prime Minister’s Office (PMO) clarified that the cabinet
had approved the Federal Board of Revenue’s (FBR) proposal. This decision was
prompted by the government's concern about significant profits, estimated at
Rs110 billion, earned by banks in 2021 and 2022 through speculative
rupee-dollar trading.
Pakistan
imposes 40% tax on banks' windfall profits from forex transactions
Contrary to analysts’ expectations, the potential
implementation of the windfall tax could generate over Rs40 billion in
government revenue.
Justice Sardar Ejaz Ishaq Khan of the IHC issued notices for
the upcoming hearing to the revenue division secretary and others. The court’s
decision followed a writ petition from Askari Bank Ltd against the November 21
SRO, which mandated a 40% tax on banks' windfall income based on a specified formula.
During the proceedings, the FBR’s lawyer argued that the
legislation would remain in effect until declared otherwise. However, the judge
acknowledged the petitioner’s argument that interim relief was sought
specifically concerning the SRO—an executive act, not legislation.
Proposed
tax on forex exchange income to reduce banks’ profits up to 11%
As a result, Justice Khan ordered, “The foregoing
submissions, therefore, demonstrate not only a prima facie case but also that
the ingredients of the balance of convenience and irreparable loss operate in
favour of the petitioner. Resultantly, the operation of the impugned SRO shall
remain suspended till the next date of hearing.”
Source: Profit Pakistan