FBR
recovers windfall tax of Rs23 billion from banks in a single day
In a landmark enforcement move, the Federal
Board of Revenue (FBR) successfully recovered Rs23 billion from 16 major banks
in a single day on February 21, 2025. This action followed a ruling by the Sindh
High Court (SHC), which upheld the legality of the Windfall Tax under Section
99D of the Income Tax Ordinance, 2001.
The court’s decision represents a
significant win for the government’s efforts to enforce corporate tax
compliance and ensure that sectors benefiting from economic fluctuations
contribute fairly to national revenue.
A
Coordinated Government Effort
The recovery operation was the result of a coordinated effort spearheaded
by Prime Minister Shehbaz Sharif. Key players included the Governor of the
State Bank of Pakistan (SBP), the Attorney General for Pakistan, the FBR
Chairman, and a dedicated legal team. The SHC’s Constitutional Bench rejected
petitions from the financial sector that challenged the Windfall Tax, allowing
the government to swiftly secure the owed funds.
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What
Is the Windfall Tax?
Introduced through the Finance Act
2023, the Windfall Tax allows the government to impose up to a 50% tax on
profits deemed excessive due to economic fluctuations.
Between 2021 and 2023, banks
recorded substantial profits by leveraging the depreciation of the Pakistani
rupee, which fell from Rs168 to Rs286 per US dollar. This devaluation widened
the spread between interbank and open market exchange rates, enabling
significant earnings from foreign exchange transactions.
To address this, the government
imposed a 40% tax on foreign exchange income through SRO 1588(I)/2023 in November
2023.
Global
Precedents and Broader Tax Reforms
Windfall taxes are not unique to
Pakistan, with similar measures implemented in countries such as the US, UK, Italy,
Romania, Greece, Spain, and Poland. Following the success of this recovery, the
government is turning its attention to enforcing other elite-focused taxes,
including:
- Super Tax (Sections 4B & 4C)
- Tax on Undistributed Reserves
- Capital Value Tax (CVT) on foreign assets
- Deemed Income Tax on unutilized real estate
- Tax on Inter-Corporate Dividends
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Legal
Reforms Strengthening Tax Enforcement
Recent reforms under the 26th
Constitutional Amendment have accelerated tax-related legal proceedings by
establishing Constitutional Benches in the Supreme Court and High Courts. These
changes have minimized prolonged legal delays in taxation cases. Additionally,
the government is dedicating more legal resources to reinforce its stance
against tax evasion.
A
Turning Point for Pakistan’s Tax Framework
The rapid recovery of Rs23 billion
within 24 hours of the SHC ruling signals a significant shift in Pakistan’s tax
landscape. The FBR views this as a pivotal moment in ensuring fair corporate
taxation and preventing the financial burden from falling disproportionately on
the country’s lower and middle-income populations.
This development underscores the
government’s commitment to strengthening its fiscal framework and holding
powerful financial institutions accountable.
Source: Profit Pakistan