In a move directed by the International Monetary Fund (IMF), the caretaker government is gearing up to levy taxes on windfall profits accumulated by banks through foreign exchange transactions in the calendar years 2021 and 2022. The decision comes as part of a broader effort to enhance fiscal responsibility and align with international economic standards.
Sources have indicated that the Revenue Division will present a summary outlining the proposed taxation on windfall profits during the federal cabinet meeting scheduled for Tuesday. This initiative is in response to the Finance Bill, which approved legislation targeting windfall profits generated by banks through foreign exchange dealings.
The Central Bank governor, in a recent session with the Parliament committee, disclosed that banks collectively earned over Rs. 100 billion through foreign exchange transactions. This revelation underscores the substantial impact of currency fluctuations on the financial sector.
In the backdrop of last year’s investigations, the State Bank of Pakistan (SBP) had conducted an inquiry against eight banks concerning unusual profits. However, no penalties were recommended or imposed. Notably, in June-July 2022, certain prominent commercial banks amassed disproportionately large profits by exploiting fluctuations in the rupee’s value against the dollar and the significant variance between open market and interbank rates.
To address such instances of windfall gains, the Finance Act 2023 introduced a new rule in the Income Tax Ordinance 2001. This amendment allows the taxation of windfall income, profit, and gains earned by companies due to economic factors leading to unexpected financial gains. The legislation applies to various sectors, including banking companies, insurance, and exploration and production of petroleum and mineral deposits, as outlined in the Seventh, Fourth, and Fifth Schedules respectively.