FBR to Issue Order Notifying 40% Tax on Banks’ Profits on Forex Income

The Federal Board of Revenue (FBR) will issue a statutory regulatory order (SRO) to impose a 40 percent additional tax on windfall profits of banks arising from foreign currency deals during 2021 and 2022.

FBR officials told ProPakistani that the FBR is expected to issue the notification in the next 1-2 days. The tax would be collected retrospectively from the banks. The FBR’s SRO will explain the mechanism of collection of tax, the time period of collection, declaration, and recovery from the banks.

There is a likelihood that the additional tax would be applicable for the period of tax year 2022 (January 2021 to December 2021) and tax year 2023 (January 2022 to December 2022).

The banks are already paying 40-45 percent tax on their taxable income which includes income from foreign currency transactions. This new tax under section 99D (Additional tax on certain income, profits, and gains) of the Income Tax Ordinance 2001 is being levied with the approval of the federal government and would be in addition to already paid tax.

According to the section (“99D. Additional tax on certain income, profits and gains) of the Finance Act, 2023, notwithstanding anything contained in this Ordinance or any other law for the time being in force, for any of the last three tax years preceding the tax year 2023 and onwards, in addition to any tax charged or chargeable, paid or payable under any of the provisions of this Ordinance, an additional tax shall be imposed on every person being a company who has any income, profit or gains that have arisen due to any economic factor or factors that resulted in windfall income, profits or gains.

The federal government may, by notification in the official gazette,

1. specify the sector or sectors, for which this section applies;
2. determine windfall income, profits, or gains and economic factor or factors including but not limited to international price fluctuation having bearing on any commodity price in Pakistan or any sector of the economy or difference in income, profit or gains on account of foreign currency fluctuation;
3. provide the rate not exceeding fifty percent of such income, profits, or gains;
4. provide for the scope, time, and payment of tax payable under this section in such manner and with such conditions as may be specified in the notification; and
5. exempt any person or classes of persons, any income or classes of income from the application of this section, subject to any conditions as may be specified in the notification.