The federal cabinet, led by Prime Minister Shehbaz Sharif, has approved an ordinance to abolish the 15% additional tax on banks’ profits from lending to the government, while simultaneously increasing the standard income tax rate for banks to 44%. This move is part of a broader effort to balance tax losses and maintain government revenues.
Deputy Prime Minister Ishaq Dar played a crucial role in negotiating the deal with the Pakistan Banks Association (PBA), securing an increase in the tax rate to recoup most of the revenue that would have been lost due to the removal of the additional tax. The Income Tax Amendment Ordinance 2024, which will be enacted before the banks’ fiscal year-end, ensures that past transactions are legally protected.
Also Read: FBR Initiates Tax Data Collection Drive in Karachi Marriage Halls
Under the new changes, the additional 10-15% income tax on banks is abolished, with the standard income tax rate raised from 39% to 44% for the current tax year. The tax rate will gradually decrease to 43% for 2026 and 42% for 2027 and beyond. This adjustment is expected to generate approximately Rs65 billion for the government before the fiscal deadline on December 31.
The Federal Board of Revenue (FBR) is currently facing a revenue shortfall and needs to meet a target of Rs6.009 trillion by the end of December to comply with International Monetary Fund (IMF) conditions. Minister of State for Finance Ali Pervaiz Malik stated that the deal encourages capital formation and aims to stimulate private sector lending.
The government had previously attempted to abolish the 15% tax in June but was forced to reconsider after banks began increasing their private lending to avoid the tax. Through the new agreement, the government has found a way to balance the interests of banks while ensuring revenue recovery.
