Pakistan prepares to impose tax on ‘extraordinary profits’ of banks

ISLAMABAD: The federal government is preparing to impose tax on ‘extraordinary profits’ of commercial banks in an effort to enhance ‘tax recovery’ as Pakistan eyed second tranche worth $710 million amid talks with International Monetary Fund (IMF), ARY News reported on Tuesday, citing sources.

Pakistan is operating under a caretaker government after an IMF loan programme, approved in July, helped avert a sovereign debt default.

Under the $3 billion standby arrangement (SBA), Pakistan received $1.2 billion from the IMF as the first tranche in July.

Last week, an IMF mission kicked off its review for the second loan tranche, which is expected to continue till Dec 15. A successful review would unlock $710 million for the country in December.

Sources told ARY News that the federal cabinet, set to meet tomorrow (Wednesday), will deliberate on a summary, seeking imposing of tax on ‘extraordinary profits’ of commercial banks.

The authorities have proposed 40 percent of taxes to be imposed on earnings of banks, from which the Federal Bureau of Revenue (FBR) can collect around Rs50 billion, they added.

Sources further claimed that banks have earned an ‘extraordinary profit’ of around Rs110 billion in two years – 2021 and 2022.

It is pertinent to mention here that the International Monetary Fund’s (IMF) review mission earlier met with Pakistani authorities and commended the government on its progress toward economic recovery.

“Nathan Porter, IMF Mission Chief, appreciated the government’s commitment to meeting the first-quarter targets, and commended the government’s efforts and measures taken in some critical areas,” the ministry said.

The ministry’s statement added that caretaker Finance Minister Shamshad Akhtar briefed the IMF mission on fiscal measures and discussed reforms and measures undertaken by Pakistan’s taxation body, as well as the government’s strategies to address its circular debt issue.

Circular debt is a form of public debt that builds up in the power sector due to subsidies and unpaid bills.