Islamabad High Court (IHC) has temporarily restrained the government from collecting up to 15% additional tax from banks that failed to meet private sector lending targets in 2024.
Nearly a dozen banks sought relief from the Islamabad High Court (IHC), arguing against the tax introduced in the federal budget for 2025.
According to media reports, the Pakistan Banks’ Association confirmed the court’s interim relief for these financial institutions.
The IHC, presided over by Judge Babar Sattar, issued an order stating, “Until the next date of hearing, no coercive action will be taken against the petitioner on the basis of any calculation made by the tax department.”
The case is scheduled to be heard starting December 3, though the timeline for a final judgment remains uncertain.
Banks that secured relief include Meezan Bank Limited, MCB Bank Limited, Askari Bank Limited, Standard Chartered Bank Pakistan Limited, Habib Metropolitan Bank Limited, and Citigroup Incorporated’s Pakistani unit, among others.
The government introduced an additional tax in the federal budget for 2025 to incentivize banks to lend at least 50% of their deposits to the private sector by December 31, 2024.
However, the average advance-to-deposit ratio (ADR) for banks operating in Pakistan recently stood at just 38%, far below the mandatory threshold. Consequently, banks were expected to pay approximately Rs197 billion in additional taxes.
Despite these hurdles, banks’ private sector lending is expected to improve next year with anticipated economic stability. The government has also indicated a shift in its strategy for calculating ADR. Starting next year, ADR will be assessed based on a full-year average rather than a single-day snapshot on December 31. This adjustment is expected to encourage consistent private sector lending and reduce reliance on year-end performance.
