National Assembly of Pakistan passes bill to give banks tax relief
In a significant move to alleviate
financial pressure on Pakistan’s banking sector, the National Assembly has
passed the Income Tax (Amendment) Bill, 2024, granting substantial tax
relief to banks.
The bill was approved during
Friday’s session, marking a key legislative win for the government, which also
saw the passage of eight other bills with little opposition.
The Income Tax (Amendment) Bill,
2024 addresses the challenges banks face due to fluctuating tax rates on
income derived from federal government securities, particularly those linked to
the Advance-to-Deposit Ratio (ADR). Under the new tax structure, banks will
face a 44% tax rate for the tax year 2025, reducing to 43% in 2026, and 42%
from 2027 onward. This phased reduction aims to bring greater predictability
and stability, enabling banks to better manage their investment portfolios and
plan for the long term.
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This development follows the initial
failure to pass the bill on Thursday, when opposition lawmakers temporarily
blocked the motion introduced by Finance Minister Muhammad Aurangzeb. However,
the government quickly regrouped and rallied sufficient support in the National
Assembly on Friday, ensuring the successful passage of the legislation without
further hurdles.
In addition to the tax relief for
banks, the new legislation introduces a flat 20% tax rate for small companies
and a 29% rate for larger corporate entities, effective from 2025. These tax
reforms are designed to create a more balanced and growth-oriented fiscal
environment.
Alongside the tax relief bill, the
National Assembly also passed several other key pieces of legislation,
including:
- Pakistan Citizenship (Amendment) Bill, 2024: This will
allow members of the Pakistani diaspora to reclaim their citizenship.
- Islamabad Capital Territory Child Marriage Restraint
Bill, 2025: A crucial step toward eliminating child marriage in the
federal capital.
- Extradition Bill: Streamlining the process for handling
extradition requests.
- Civil Servants (Amendment) Bill: Requiring senior civil
servants to disclose public assets, reinforcing transparency and
accountability.
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The swift passage of these laws,
particularly the tax relief for banks, signals the government’s focus on
enhancing investor confidence, stabilizing the financial sector, and fostering
compliance. The banking industry, which has long been burdened by high taxes,
is expected to benefit significantly from these reforms, potentially leading to
increased investments in government securities and stronger financial
intermediation.
As banks prepare to align with the
new tax framework, analysts anticipate that this reform will not only boost
profitability in the sector but also enhance liquidity and capital adequacy,
contributing positively to Pakistan’s overall economic outlook.
Source: pkrevenue.com