FBR sets deadline for banks to pay tax on Windfall Income

Islamabad: The Federal Board of Revenue (FBR) has imposed a deadline for banks to pay a significant 40 percent additional tax on 'windfall income, profits, and gains' earned during 2021 and 2022.

The federal cabinet had previously sanctioned a 40 percent tax on windfall profits generated by banks from foreign exchange transactions in 2021 and 2022.

As outlined in S.R.O.1588 (l)/2023 by the FBR, the federal government has designated banking companies as the focal sector for section 99D of the Income Tax Ordinance.

The newly introduced section 99D in the Income Tax Ordinance 2012, implemented by the Finance Act, 2023, will enforce the taxation on windfall income, profits, and gains of the banks.

This development precedes the agreement reached between Pakistani authorities and the International Monetary Fund's (IMF) staff on the first review for the second tranche of the $3 billion loan program.

As per the FBR's S.R.O issued today, the computation method for windfall income, profits, and gains must align with the provisions outlined in the notification. The tax rate for section 99D is specified to be 40 percent.

“The scope of windfall income, profits, and gains shall be as computed in this SRO for the calendar years 2021 and 2022 corresponding to tax years 2022 and 2023, respectively, for section 99D,” it added.

Furthermore, the FBR has set November 30, 2023, as the deadline for the payment of the additional tax for section 99D. An extension of the deadline, not exceeding fifteen days beyond November 30, 2023, is also permitted.

The FBR has specified that the additional tax payment should be processed through the federal treasury using a prescribed challan or computerized payment receipt. The computation of banks' windfall income, profits, and gains will adhere to the laid-down formula, as stated by the FBR.