Government Plans to Eliminate 15% Income Tax on Banks’ Profits
The federal government is poised to eliminate an additional income tax of up to 15 percent on banks' profits,
The federal government is poised to eliminate an additional income tax of up to 15 percent on banks’ profits, a move agreed upon in collaboration with commercial banks under the Finance Act 2024, as reported by Express Tribune.
While the government moves forward with abolishing this tax on banks, it maintains its stance on significant income tax hikes for salaried individuals, anticipated to generate approximately Rs. 435 billion in revenue next year. There has been a request from military authorities urging the finance minister to reconsider the proposed tax increase for salaried individuals, along with the introduction of a flat 15 percent capital gains tax on property sales.
Under pressure from the banking sector, the government had temporarily suspended the additional tax in 2023, only to reinstate it in January 2024. The standard income tax rate for banks stands at 39 percent, with the possibility of rising to 55 percent based on the Advances-to-Deposit Ratio (ADR). Banks argue that the ADR tax is inequitable and fails to discourage government borrowing.
For the upcoming fiscal year, the government plans to borrow Rs. 24 trillion from banks to manage existing debt obligations. This strategy follows the International Monetary Fund’s directive prohibiting direct borrowing from the State Bank of Pakistan, prompting the Ministry of Finance to resort to borrowing from the banking sector at higher interest rates than those offered by the central bank.
