Pakistan contemplating Windfall Tax on profits of banking sector

Islamabad [Pakistan], January 6 : Following the European model of Windfall Tax to generate revenues in the aftermath of the Russia-Ukraine war, Pakistan is considering imposing it on the profits of the banking sector in the range of 50 per cent to 70 per cent, reported The News International.
The government is ascertaining the exact levels of windfall profits extracted by the banking sector through recent currency manipulation. The policymakers may slap a tax at a rate whereby there is no threat of choking the banking sector.
"Different proposals are under consideration for imposing the Windfall Tax on profits earned by the banking sector. A fixed tax rate from 50 pc to 70 pc is expected to be slapped for getting revenues out of the lofty profits earned by the banks," officials, who spoke on the condition of anonymity, told the publication.
The tax officials who are working on this proposal studied the Windfall Tax imposed by the UK, Austria, Italy, Australia and other countries whereby the energy companies had earned lofty profits in the aftermath of the Russia-Ukraine war, so the respective governments had imposed the Windfall Tax to generate tax revenues. Even the Biden administration in the USA had threatened to impose Windfall Tax, reported The News International.
However, sources in the Federal Board of Revenue (FBR) said that the proposal is yet to be approved by the government though Finance Minister Ishaq Dar had hinted in his press briefing on Wednesday that the government would move ahead with the Windfall Tax on the banking sector.
The recent energy crisis across Europe as a result of COVID-19, poor market decisions and the Ukraine war have pushed energy prices to an all-time high.
Countries across Europe were moving to build up reserves in the face of restricted gas supplies to minimize the effects of a cold winter.
At the same time, some governments were even considering country-wide blackouts and energy rationing to ensure that, at the very least, there was enough gas to heat homes.
"The government expects that in case of imposition of 50 pc to 70 pc fixed tax rate on lofty bank profits, the government can fetch Rs25 to Rs35 billion revenue generation," said one official.
On the proposed Flood Levy, the government might grant an exemption on the import of basic food items and raw materials of essential or life-saving drugs.
The flood levy could be in the range of 1 to 3 per cent on all other imported items. It is estimated that the government can fetch Rs 60 billion in the remaining six months of the current fiscal year 2022-23, reported The News International.
Sources said the government will prefer the Flood Levy because it will not become a part of the Federal Divisible Pool (FDP) under the NFC Award for distribution among the provinces, so the collected money will only be used by the federal government.
On the other hand, the FBR seeks to meet the annual tax collection target of Rs 7,470 billion for the current fiscal year and has so far collected Rs 3,428 billion in the first six months (July-Dec) period, reported The News International.
Now the tax authorities will have to collect Rs 4,042 billion for materializing the desired tax collection target by June 30, 2022.