In a surprising twist that has left tax experts grappling for answers, income tax collection from profit on bank deposits plummeted by a staggering 37% in April 2025, compared to the same month last year. This dramatic fall occurred even as Pakistan’s bank deposits soared to historic highs, crossing the Rs32 trillion mark for the first time in the nation’s financial history.
Official figures released by the Federal Board of Revenue (FBR) reveal that income tax collected on profit from deposits fell sharply to just Rs4 billion in April 2025, down from Rs6.5 billion recorded in April 2024. This significant drop has raised serious concerns about the effectiveness of current tax policy amidst rapidly shifting monetary dynamics.
Interest Rate Cuts Blamed for Revenue Decline
According to insiders within the FBR, major banks headquartered in Karachi reported the April tax data, with the primary cause identified as a steep drop in interest rates. This reduction has directly impacted the actual profit being earned on deposits. Over the past year, the State Bank of Pakistan (SBP) has aggressively cut its benchmark policy rate – from a record 22% down to a mere 11% – in a concerted effort to kickstart economic growth and stimulate investment. However, this period of monetary easing appears to have taken a serious toll on tax revenues specifically tied to bank profits.
Record-Breaking Deposits Present a Paradox
Ironically, the collapse in profit-based tax collection has occurred alongside a period of record-setting surge in overall bank deposits. As of the end of April 2025, total bank deposits hit a jaw-dropping Rs32.32 trillion, according to data from the SBP. This represents a substantial year-on-year increase of 13.72%, up from Rs28.42 trillion in April 2024. Even on a month-to-month basis, deposits demonstrated robust growth, jumping by 2.18% from Rs31.63 trillion in March 2025.
“This paradox is alarming,” remarked a senior financial analyst. “We’re seeing massive inflows into the banking system, which is a positive sign for liquidity, but because of significantly lower profit rates, the government is collecting less tax on these earnings. April’s data has starkly exposed a growing gap between economic momentum, as reflected in rising deposits, and the corresponding tax revenue generation.”
Despite the record April deposits, cumulative income tax collection on profit from bank accounts for the first ten months of the fiscal year (July–April 2024-25) has seen only a marginal decline of 1%, dropping from Rs86 billion to Rs85 billion. This indicates that while the monthly fluctuations are significant, the overall fiscal year-to-date impact has been somewhat buffered by earlier higher collections.
As Pakistan’s financial institutions celebrate their ballooning deposit bases, the FBR is now under mounting pressure to find innovative ways to shore up revenue amid falling profit-based tax collections. April’s surprising numbers could serve as a critical wake-up call for policymakers, urging a re-evaluation of how monetary policy shifts intersect with tax revenue strategies.