Caretaker cabinet approves levy of 40% tax on banks windfall profit of 2021-22

• Tax on windfall income profits to be imposed under Finance Act, 2023.
• 40% windfall tax on profits of banking sector agreed under IMF terms.
• Move comes ahead of Pakistan-IMF pact on standby-bailout review

The federal cabinet on Wednesday approved a 40% tax on windfall profit earned by banks on foreign exchange transactions during the years 2021 and 2022.

The imposition of 40% was recommended by the Federal Board of Revenue (FBR) to the cabinet meeting headed by Caretaker Prime Minister Anwaar-ul-Haq Kakar.

The new section 99D in the Income Tax Ordinance 2012 — introduced by the Finance Act, 2023 — will enforce the imposition of tax on windfall income profits and gains of the banks.

The development came ahead of the agreement between Pakistani authorities and the International Monetary Fund's (IMF) staff on the first review for the second tranche of the staff-level agreement under the $3 billion loan programme.

The IMF mission — led by Nathan Porter — and the Pakistani economic team completed discussions on all sectors. 

The Pakistani delegation was led by Caretaker Finance Minister Shamshad Akhtar and comprised State Bank of Pakistan (SBP) Governor Jameel Ahmad, FBR Chairman Malik Amjed Zubair Tiwan, and officials from the finance and energy ministries.

Sources said that windfall taxes of up to Rs55 billion will be levied for the financial years 2021 and 2022. The taxes on the profits earned by the banks will be collected in the month of December.

According to the sources within the finance ministry, the Finance Bill does not require any amendments for the imposition of windfall tax on the banking sector.

"However, approval from the federal cabinet will have to be sought for the windfall tax," they added.

Moreover, the IMF delegation and the economic team are likely to prepare the Memorandum of Economic and Financial Policies (MEFP) draft today, said the sources.

The parties have also agreed to not increase the interest rate further, added the sources.