The government is considering raising the super tax on commercial banks to 7% and increasing the additional tax on earnings made by banks giving loans to the cash-strapped government.
According to government sources, if both plans pass scrutiny and are later adopted by the National Assembly, the actual rise in the additional tax burden on commercial banks in the fiscal year 2022-23 could be 7 percent to 8%.
According to a senior government official, the federal government has produced a budget plan to raise the super tax on commercial banks from 4% to 7%.
The hike in the tax rate might result in an additional Rs. 8 billion to Rs. 10 billion in super tax revenue from banks each year.
Banks are currently subject to a 35 percent income tax, a 4% super tax, and a 2.5 percent to 5% additional tax on additional investments in government debt. The effective tax rate for banks now stands at roughly 43%.
According to sources, if both measures are approved, the tax rate for banks may rise to half of their earnings.
The super tax was enacted for a one-year period in 2015 to gather revenue from all companies and individuals with an annual income of more than Rs. 500 million to aid in the fight against terrorism.
In 2020, the individual super tax will be phased out. However, the legal provision for resurrecting the individual super tax, with a 0% rate, still exists in the law.
To reintroduce the super tax on the wealthy, the government merely needs to change the rate.
Following a full ban on government lending from the central bank, bankers have reaped a windfall and have also profited from the federal government’s exploitation.
The exploitation has sparked great discontent in the Q-block, the finance ministry’s headquarters.
The government appears to have decided to use fiscal policy to encourage banks to behave responsibly, as it remains fully at the mercy of bankers after the door to borrow from the central bank was permanently shut pursuant to the IMF’s condition under its loan program.
According to sources, Prime Minister Shehbaz Sharif also wants the Federal Board of Revenue (FBR) to draught plans to collect additional taxes from banks in the coming fiscal year.
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