President Asif Ali Zardari on Monday night promulgated the Income Tax (Amendment) Ordinance, 2024, introducing significant changes to the taxation structure of banks by amending the First and Seventh Schedules of the Income Tax Ordinance, 2001.
Under the ordinance, a tax rate of 44% has been set for banking companies for the tax year 2025. The rate will reduce to 43% in 2026 and 42% for 2027 and subsequent years. For small companies, the tax rate remains at 20%, while for all other companies, it is 29%.
The Federal Board of Revenue (FBR) expects to collect approximately Rs70 billion from the banking sector by December 31, 2024. This is anticipated to reduce the revenue shortfall in the current fiscal year.
The ordinance also defines the method for computing the gross advances-to-deposit ratio for banks. It states that the amounts of “gross advances and deposit” at the end of the accounting period, as disclosed in the annual audited accounts, will be used for this calculation.
Additionally, it stipulates that from the tax year 2025 and onwards, profits and gains of banking companies will be taxed as per Division-II of Part-I of the First Schedule. The gross advances-to-deposit ratio will no longer play a role in determining a bank’s tax liability.
The new tax measures aim to bolster revenue collection efforts and help the government meet its fiscal targets amidst ongoing economic challenges.
