According to credible sources, Finance Minister Ishaq Dar has not yet made a decision about the introduction of a mini-budget. However, certain recommendations concerning the banking industry have been drafted. The ideas will be enacted following the formal approval of Finance Minister Ishaq Dar, who is hesitant to adopt a minibudget. The final decision would be made before the end of the current month based on the FBR’s tax collection position.
One of the recommendations of the mini-budget is to tax the banking industry’s profits. It is suggested to tax the profits banks receive from government securities and foreign exchange transactions. This proposal need Finance Minister and Prime Minister approval.
The banking industry was substantially taxed under the Finance Bill 2022 and subsequent modifications to the Finance Bill 2022. The expected revenue impact of the super tax imposed on large industries/sectors, including banks, was 80 billion rupees in 2022-23, generating an additional 466 billion rupees in 2022-23.
A modification to the Income Tax Ordinance 2001 enacted by the Finance Act 2022 increased the tax rate on the income of banking firms to 39 percent for the tax year 2023 from the present rate of 35 percent.
In lieu of the rates specified in Division II of Part I of the First Schedule, the increased income of banking businesses derived from further investments in federal government securities was taxable at the rate of 37.5% for tax years 2020 and 2021. This provision was further amended by the Finance Act of 2021, which made income attributable to investments in federal government securities of banking companies taxable based on advances-to-deposit ratios at graduated tax rates of 40%, 37.5 percent, and 35%, if the ratio was up to 40%, 40-50 percent, and above 50%, respectively.
The Finance Act of 2022 imposes higher tax rates on the portion of a bank’s taxable income related to investments in federal government securities. The enhanced rates for the tax year 2022 are 55%, 49%, and 35% if the gross advances to deposit ratio was less than 40%, between 40% and 50%, or more than 50%, respectively. For the tax year 2023 and subsequent years, the tax rates will be 55%, 49%, and 39% if the gross advances to deposit ratio is between 0 and 40%, 40 to 50%, and over 50%, respectively.
Through a modification to Division II of Part I of the First Schedule, the tax rate on the revenue of banking companies has been increased to 39 percent for the tax year 2023, up from the present rate of 35 percent. Including the reversal of tax relief for the salaried class, the entire impact of the new policies enacted via modifications to the Finance Bill, 2022, was estimated to be roughly Rs235 billion.
In its most recent budget, the FBR enacted net taxing measures of 355 billion rupees. Additional taxes measures totaling Rs. 235 billion were implemented, and net revenue measures amounted to Rs. 590 billion to Rs. 600 billion. The FBR estimates that it will collect Rs. 80 billion from the imposition of a 4% “super tax” on all industries and a 10% “super tax” on 13 industries, including steel, banking, cement, cigarettes, chemicals, beverages, and liquefied natural gas (LNG) terminals,” airlines, textile, automobile, sugar mills, oil and gas, and fertiliser.
In the budget for 2022-23, a total of Rs. 440 billion was planned for taxing initiatives. The entire cost of the relief measures was 85 billion rupees. The actions had a net impact of Rs. 355 billion. Sales tax/federal excise measures were about Rs90 billion, whereas sales tax relief was around Rs30 billion. The sales tax/federal excise measures had a net impact of Rs. 60 billion.
The income tax measures were estimated to cost Rs 316 billion, but Rs 49 billion in relief has been offered. The net effect of the income tax measures was 267 billion rupees. After new taxing measures were enacted through revisions to the Finance Bill of 2022, the revenue impact of the income tax measures has grown.
The expected revenue from administrative and enforcement actions for 2022-23 was 200 billion rupees, up from 175 billion rupees in 2021-22.