SHC Dismisses Bank Petition, Paving Way for Payment
Karachi – Banks operating in Pakistan have collectively paid Rs 25 billion in windfall tax to the Federal Board of Revenue (FBR), according to official sources. This payment comes after the Sindh High Court (SHC) dismissed a petition filed by the banks against the levy.
Agreement Reached for Immediate Payment
Sources familiar with the matter revealed that an agreement was reached between banking representatives and the FBR, paving the way for the immediate transfer of Rs 25 billion to the Large Taxpayers Office (LTO) in Karachi. This agreement was reportedly the result of high-level discussions involving the FBR chairman, the LTO Chief Commissioner, the State Bank of Pakistan (SBP), and the Pakistan Banks Association. While fulfilling their tax obligations, the banks have reserved the right to appeal the SHC verdict in the Supreme Court.
Court Upholds Legality of Windfall Tax
The Sindh High Court’s decision, delivered the previous day, rejected multiple petitions from banks seeking temporary relief from the Windfall Income Tax. The court upheld the legality of the tax, dismissing challenges to the constitutionality of Section 99D of the Income Tax Ordinance 2001 and related regulations (SRO 1588(I)/2023) issued to implement the tax.
FBR Anticipates Further Revenue
The FBR anticipates collecting an additional Rs 17 billion in windfall tax from banks under the jurisdiction of tax offices in Lahore and Islamabad, further boosting government revenue from this sector.
Background: Windfall Tax Legislation
Section 99D, introduced through the Finance Act, 2023, empowers the FBR to impose a supplementary tax on incomes deemed to be “windfall earnings” resulting from unforeseen economic shifts. This law, applied retroactively for the past three tax years, requires banks to pay this additional tax alongside their regular tax liabilities.
Tax Targets Speculative Profits from Exchange Rate Fluctuations
To implement this legislation, the FBR issued SRO 1588(I)/2023, which outlined the methodology for calculating the windfall tax on banks. The tax aims to target what the government considers speculative profits gained by banks from fluctuations in exchange rates, particularly the rupee-dollar exchange rate.
Banks to Comply While Considering Further Appeal
Instead of immediate compliance, banks had initially challenged the legal basis of the tax in court. However, with the SHC ruling in favor of the FBR, banks are now obligated to comply with the tax law while considering their options for further legal challenges.
Government Sees Ruling as Fiscal Victory
This court decision is seen as a significant step by the government to regulate unexpected profits within the banking industry, ensure fair taxation, and reinforce fiscal responsibility across the financial sector.
