IHC suspends 40% windfall tax on banks

Contrary to analysts' expectations, the windfall tax, if implemented, could potentially generate over Rs40 billion in revenue for the government

The Islamabad High Court (IHC) has issued a temporary stay on the government’s imposition of a one-off 40 percent tax on bank profits derived from foreign exchange transactions in the last two years.

The suspension, effective until December 8, comes in response to a statutory regulatory order (SRO) related to Section 99D of the Income Tax Ordinance 2021, introduced by the Finance Act 2023.

The Prime Minister’s Office (PMO) clarified that the Federal Board of Revenue’s (FBR) proposal received approval from the cabinet. This decision was prompted by the government’s concern over substantial profits—reported to be Rs110 billion—earned by banks in 2021 and 2022 through speculative rupee-dollar trading.

Contrary to analysts’ expectations, the windfall tax, if implemented, could potentially generate over Rs40 billion in revenue for the government.

Justice Sardar Ejaz Ishaq Khan of the IHC issued notices to the revenue division secretary and others for the upcoming hearing. The court’s decision followed a writ petition filed by Askari Bank Ltd against the SRO issued on November 21, which mandated a 40 percent tax on banks’ windfall income calculated according to the specified formula.

During the proceedings, the FBR’s lawyer argued that the legislation would remain in effect until declared otherwise. However, the judge acknowledged the petitioner’s argument that interim relief was sought specifically concerning the SRO—an executive act, not legislation.

Consequently, Justice Khan ordered, “The foregoing submissions, therefore, demonstrate not only a prima facie case but also that the ingredients of the balance of convenience and irreparable loss operate in favour of the petitioner. Resultantly, the operation of the impugned SRO shall remain suspended till the next date of hearing.”

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