Pakistan Contemplates Taxing Banks' 'Extraordinary Profits' to Boost Tax Recovery
In a move aimed at enhancing tax recovery and addressing economic challenges, the federal government of Pakistan, currently operating under a caretaker setup due to an IMF loan program, is considering imposing a tax on the 'extraordinary profits' earned by commercial banks. This initiative aligns with Pakistan's efforts to secure a second $710 million tranche from the International Monetary Fund (IMF) under the $3 billion standby arrangement (SBA) approved in July.
Karobar
ISLAMABAD: Having already received the first tranche of $1.2 billion, Pakistan is now undergoing a review by an IMF group, with discussions set to continue until December 15. A successful review could result in the disbursement of the second tranche in December, providing crucial financial support.
The federal cabinet is slated to deliberate on a proposal tomorrow, discussing the potential imposition of a 40 percent tax on the 'extraordinary profits' of commercial banks. If implemented, this measure is expected to generate approximately Rs50 billion for the Federal Bureau of Revenue (FBR).
Insiders suggest that commercial banks have reported 'extraordinary profits' amounting to around Rs110 billion in the years 2021 and 2022. This move comes as part of broader fiscal measures to stabilize the economy, and it has gained significance following positive feedback from the IMF's recent review mission.
Nathan Porter, IMF Mission Chief, praised the Pakistani government's commitment to meeting targets and recognized its actions in crucial economic areas. Caretaker Finance Minister Shamshad Akhtar briefed the IMF on fiscal measures, emphasizing reforms and strategies to tackle Pakistan's circular debt issue.
The circular debt problem, characterized by accumulating public debt in the power sector due to subsidies and unpaid bills, remains a key focus in Pakistan's economic recovery plan.
