The government is likely to pass a mini-budget soon in order to fulfill prior actions of international lenders and meet taxation requirements in the current fiscal year.
The mini-budget would focus on “targeted taxation” for increasing the incidence of tax on sectors earning windfall profits specifically the banking sector, highly placed government officials revealed.
Reliable sources told ProPakistani that till now the decision to introduce a mini-budget has not been taken by Finance Minister Ishaq Dar. But some proposals relating to the banking sector have been chalked out. The proposals would be implemented after formal approval of Finance Minister Ishaq Dar, who is still reluctant to introduce a mini-budget. The final decision would be taken in view of the tax collection position of the FBR by the end of the current month.
One of the proposals of the mini-budget is to tax profits earned by the banking sector. The profits earned by the banks from government securities as well as foreign exchange earnings are proposed to be taxed. This proposal needs clearance from the Finance Minister and Prime Minister.
The banking sector was already heavily taxed through the Finance Bill 2022 and later amendments introduced in the Finance Bill 2022. The revenue impact of super tax imposed on big industries/sectors including banks was estimated at Rs. 80 billion for 2022-23 to generate additional revenue of Rs. 466 billion in 2022-23.
The tax rate on income of banking companies was enhanced to 39 percent for the tax year 2023 from the current 35 percent through an amendment in the Income Tax Ordinance 2001 through Finance Act 2022.
The taxable income arising from the additional income of banking companies earned from additional investment in federal government securities for the tax year 2020 and 2021 was taxable at the rate of 37.5 percent instead of rates provided in Division II of Part I of the First Schedule. This provision was further amended through the Finance Act, 2021, whereby income attributable to investment in the federal government securities of banking companies was made taxable on the basis of advances to deposit ratios at graduated tax rates of 40 percent, 37.5 percent, and 35 percent, if the ratio was up to 40 percent, 40-50 percent and above 50 percent, respectively.
The Finance Act, of 2022 has introduced enhanced tax rates on banks’ taxable income attributable to investment in federal government securities. The enhanced rates for the tax year 2022 are 55 percent, 49 percent, and 35 percent, if the gross advances to deposit ratio was up to 40 percent, 40-50 percent, or above 50 percent, respectively. For the tax year 2023, and onwards tax rates will be 55 percent, 49 percent, and 39 percent, if the gross advances to deposit ratio, is up to 40 percent, 40-50 percent, or above 50 percent, respectively.
The tax rate on income of banking companies has been enhanced to 39 percent for the tax year 2023 from the current 35 percent through amendment in Division II of Part I of the First Schedule of the Ordinance. The total impact of the new measures taken through amendments to the Finance Bill, 2022, was calculated at around Rs235 billion including the reversal of tax relief for the salaried class.
The FBR has taken net taxation measures of Rs. 355 billion in the last budget. The additional taxation measures of Rs. 235 billion were taken and net revenue measures stood at Rs. 590 to Rs. 600 billion. The FBR has estimated to collect Rs. 80 billion from the imposition of a four percent “super tax” on all sectors and a 10 percent “super tax” from 13 sectors including steel, banking, cement, cigarettes, chemicals, beverages, and liquefied natural gas (LNG) terminals,“ airlines, textile, automobile, sugar mills, oil and gas, and fertilizer.
In budget 2022-23, the total taxation measures were proposed at Rs. 440 billion for 2022-23. The total relief measures stood at Rs. 85 billion. The net impact of the measures stood at Rs. 355 billion. Sales tax/federal excise measures amounted to Rs90 billion, whereas, sales tax relief totaled Rs. 30 billion. The net impact of the sales tax/federal excise measures stood at Rs. 60 billion.
The income tax measures were projected at Rs. 316 billion, whereas, relief has been provided of Rs. 49 billion. The net impact of the income tax measures totaled Rs. 267 billion. The revenue impact of the income tax measures has been increased after new taxation measures were taken through amendments in the Finance Bill, 2022.
The revenue from the administrative and enforcement measures was estimated at Rs. 200 billion for 2022-23 as compared to Rs. 175 billion in 2021-22.
