Govt decides to close Rs200bn tax loophole for banks

The government is set to close a legal loophole allowing commercial banks to avoid paying up to Rs200 billion in income taxes annually. The new policy, which will be introduced in the next budget, aims to encourage banks to increase lending to the private sector, spurring economic growth.

During a meeting with the Senate Standing Committee on Finance, Federal Board of Revenue (FBR) Chairman Rashid Langrial outlined the plan to shift from determining tax liability based on banks’ December 31 balance sheets to an annual average lending position. This change is expected to curb the banks' strategy of adjusting portfolios at year-end to minimize their tax liabilities.

The government introduced the tax in 2022 to incentivize banks to lend more to the private sector instead of relying heavily on government debt. However, banks have been evading the tax through strategic lending adjustments, which the government now aims to stop. If banks fail to meet private sector lending targets, they could face additional taxes of up to 15%.

The committee highlighted concerns about the country's reliance on bank financing to address its budget deficit, stressing the need for increased private sector engagement to boost economic growth.