The government is likely to invoke provisions of the Finance Act, of 2023, to impose tax on windfall profits/gains of banks.
It is learnt that the federal cabinet in its meeting on Tuesday (Nov 14) may consider the agenda item, “Tax on windfall profits of banks earned on foreign exchange transactions during calendar years 2021 and 2022.”
The Revenue Division is expected to move a summary to the federal cabinet on the said issue.
Windfall profits of sectors/industries ‘Additional Tax’ applicable for last three tax years from TY23
The Finance Act, 2023 has introduced a new section 99D which will provide for the imposition of additional tax on windfall income profits and gains of any person being a company.
The federal government has been empowered under this section to prescribe any rate not exceeding 50 percent, specify any sector or sectors for which this section will apply, determine economic factor or factors including but not limited to international price fluctuation having bearing on any commodity price in Pakistan or any sector of the economy and or difference in income, profit or gains on account of foreign currency fluctuation, provide for the scope, time and payment of tax payable and include or exempt any person or classes of persons, any income or classes of income from the application of this section through a notification in the official gazette.
The corresponding amendments have also been incorporated in the Fourth Schedule, Fifth Schedule, and Seventh Schedule dealing with insurance companies, oil and gas exploration companies and banking companies, respectively.
According to the section (“99D. Additional tax on certain income, profits and gains) of the Finance Act, 2023, notwithstanding anything contained in this Ordinance or any other law for the time being in force, for any of the last three tax years preceding the tax year 2023 and onwards, in addition to any tax charged or chargeable, paid or payable under any of the provisions of this Ordinance, an additional tax shall be imposed on every person being a company who has any income, profit or gains that have arisen due to any economic factor or factors that resulted in windfall income, profits or gains.
The federal government may, by notification in the official gazette, – (a) specify sector or sectors, for which this section applies; (b) determine windfall income, profits or gains and economic factor or factors including but not limited to international price fluctuation having bearing on any commodity price in Pakistan or any sector of the economy or difference in income, profit or gains on account of foreign currency fluctuation; (c) provide the rate not exceeding fifty percent of such income, profits or gains; 16 (d) provide for the scope, time and payment of tax payable under this section in such manner and with such conditions as may be specified in the notification; and (e) exempt any person or classes of persons, any income or classes of income from the application of this section, subject to any conditions as may be specified in the notification.