40% windfall tax on banks’ profits faces uncertainty

ISLAMABAD (INP): The Federal Board of Revenue’s (FBR) notification imposing a 40% additional tax on banks’ windfall profits has been met with uncertainty as it requires approval from the National Assembly by February 19, 2024.

The formation of the National Assembly is not expected until after the upcoming general elections, raising concerns about the timely implementation of the tax measure.

The FBR issued SRO 1588(I)/2023 on November 21, 2023, invoking its powers under Section 99D(2) of the Income Tax Ordinance to tax banks’ windfall profits. The notification outlines the calculation method and formula for determining the 40% tax.

However, Section 99D(3) of the Income Tax Ordinance mandates that the federal government obtain approval from the National Assembly for such a tax measure.

The deadline for submitting the notification to the National Assembly is February 19, 2024.

With the general elections scheduled to take place in the coming months, the formation of the National Assembly is unlikely to occur before the February 19 deadline. This raises questions about the validity of the FBR’s notification and the enforceability of the windfall tax.

Industry experts have expressed concerns about the rushed implementation of the tax, suggesting that it may lead to legal challenges and hinder investment in the banking sector. They urge the government to reconsider the timeline and ensure proper legislative processes are followed.

The uncertainty surrounding the windfall tax has also raised concerns among banks, as they prepare for their financial year-end reporting. The lack of clarity regarding the tax liability could impact their profitability and financial planning.

In light of these developments, the banking sector and the business community are closely monitoring the situation and await further guidance from the government.

The timely resolution of this matter is crucial to maintain investor confidence and promote economic stability.