Deadline set for banks to pay tax on ‘windfall profits’

ISLAMABAD: The Federal Board of Revenue (FBR) has mandated a deadline for banks to pay a substantial 40 percent additional tax on ‘windfall income, profits, and gains’ accrued during 2021 and 2022, ARY News reported on Wednesday.

According to S.R.O.1588 (l)/2023 issued by the FBR, the federal government has specified the banking companies as the focal sector for section 99D of the Income Tax Ordinance.

It is pertinent to mention here that the federal cabinet had approved a 40 percent tax on windfall profit earned by banks on foreign exchange transactions during the years 2021 and 2022.

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 FBR – in its S.R.O issued today – determined that the method by which the windfall income, profits, and gains are required to be computed shall be in accordance with the provisions of this notification.

The FBR has also specified that the tax rate for the said section 99D shall be 40 percent.

“The scope of windfall income, profits, and gains shall be as computed in this SRO for the calendar years 2021 and 2022 corresponding to tax years 2022 and 2023 respectively, for the section 99D,” it added.

Meanwhile, the bureau fixed November 30, 2023, to be the date by which the payment of the additional tax for section 99D shall be made. It also allowed for the possibility of an extended deadline, not exceeding fifteen days beyond November 30, 2023.

The FBR has specified that the payment of the additional tax must be processed through the federal treasury using a prescribed challan or computerized payment receipt.

The windfall income, profits, and gains of banks shall be computed in accordance with the laid down formula, FBR added.