Govt Likely to Tax Windfall Profits of Banks on Foreign Exchange Transactions For 2021, 2022

The caretaker government on the instructions of the International Monetary Fund (IMF) will impose a tax on windfall profits of banks earned on foreign exchange transactions during calendar year 2021 and 2022.

Sources told ProPakistani that the Revenue Division will present the summary in the federal cabinet meeting held on Tuesday.

The government in the Finance Bill approved legislation taxing on windfall profits of banks earned on foreign exchange transactions.

The Central Bank governor also informed the Parliament committee that banks had earned over Rs. 100 billion on foreign exchange.

It is pertinent to note that SBP last year had also completed an inquiry against 8 banks on unusual profits made by banks but it did not recommend or impose any penalty on them.

Notably in June-July 2022, some prominent commercial banks had gained unjustifiably large profits by taking advantage of the rupee’s fluctuation versus the dollar and the wide difference between open market and interbank rates.

Later, through the Finance Act 2023, a new rule was introduced in the Income Tax Ordinance 2001 (“ITO”) to tax windfall income, profit, and gains of companies due to any economic factor or factors that resulted in such windfall income, profit, and gains.

The corresponding amendments were made in the Seventh Schedule (Banking Companies), Fourth Schedule (Insurance), and Fifth Schedule (Exploration and production of petroleum, and exploration and extraction of mineral deposits).