ISLAMABAD (Web Desk) – In a major development that can further damage Pakistan’s credibility internationally, the Islamabad High Court (IHC) has suspended the collection of 40 per cent windfall tax imposed on banks for the profit earned from foreign exchange transactions in the past two years – 2021 and 2022.
With the International Monetary Fund (IMF) pressing Pakistan hard to enhance revenue collection, the caretaker government had decided earlier this month to impose windfall tax after the bank profits skyrocketed amid the devaluation of rupee.
The court order was a result of the petition filed by a private bank against the SRO issued on Nov 21, despite the FBR lawyer arguing that the legislation on the subject should remain operative until it was declared ultra vires.
However, the single-member bench comprising Justice Sardar Ejaz Ishaq Khan observed that the interim relief was sought with respect to the SRO, which was an executive act and not legislation.
“The foregoing submissions, therefore, demonstrate not only a prima facie case but also that the ingredients of the balance of convenience and irreparable loss operate in favour of the petitioner. Resultantly, the operation of the impugned SRO shall remain suspended till the next date of hearing,” the court said in its order.
The imposition of windfall tax was in line with the overall IMF stance that revolves around reducing budget deficit through enhanced revenue generation as well as removal of subsidies and exemptions and privatisation of loss-making state-owned enterprises (SOEs).
However, one cannot blame the IMF for demanding enhanced tax collection as Pakistan has one of the worst tax-to-GDP ratio in the world, primarily because of its inability to tax various sectors like retail and real estate at a time when the powerful businesses are enjoying exemptions under different heads.
It means the ordinary people are being forced to pay indirect taxes to a level that has become unbearable amid a record-high inflation and interest rates, causing an unprecedented cost-of-living crisis and a stagnant economy.
Meanwhile, the windfall tax on banks was approved by the federal cabinet by approving a recommendation of the Federal Board of Revenue (FBR), for which a new section 99D had been introduced in the Finance Act, 2023.
The move is supposed help the cash-strapped government generate up to Rs44 billion as it is trying hard to bridge the gap between revenue collection and expenditure.