The government is contemplating the utilization of provisions within the Finance Act, 2023, to enforce taxation on windfall profits and gains accrued by banks. In a potential move set for discussion during the federal cabinet meeting on Tuesday (Nov 14), the agenda item titled “Tax on windfall profits of banks earned on foreign exchange transactions during calendar years 2021 and 2022” is expected to be considered.

It is anticipated that the Revenue Division will present a summary on this issue to the federal cabinet. The Finance Act, 2023 has introduced a novel section, 99D, which empowers the imposition of an additional tax on windfall profits and gains, specifically for companies.

Under this section, the federal government is granted the authority to prescribe a rate, not exceeding 50 percent, specify applicable sectors, determine economic factors impacting commodity prices and sectors in Pakistan, and address differences in income, profit, or gains due to foreign currency fluctuation. The implementation, scope, time, and payment of tax payable can be outlined, and exemptions or inclusions for individuals or income classes can be communicated through an official gazette notification.

Corresponding amendments have been integrated into the Fourth Schedule, Fifth Schedule, and Seventh Schedule, pertaining to insurance companies, oil and gas exploration firms, and banking companies, respectively.

As outlined in section 99D of the Finance Act, 2023, an additional tax will be imposed on companies with income, profits, or gains resulting from economic factors causing windfall income. The federal government, through an official gazette notification, can specify applicable sectors, determine windfall income criteria, set tax rates, outline payment procedures, and exempt or include individuals or income classes, subject to specified conditions.

This development signals a potential shift in the taxation landscape, particularly impacting the banking sector, and underscores the government’s efforts to address windfall profits within the framework of the Finance Act, 2023. The outcome of the federal cabinet meeting will provide further clarity on the implementation of these proposed taxation measures.