Govt ready to impose Rs60b flood levy on imports, windfall tax for banks

In an attempt to collect additional revenue, there are reports that the government would promulgate a presidential ordinance, which some describe as a mini budget, to impose flood levy on imports.

At the same time, the government on Thursday postponed a decision regarding slapping windfall tax on commercial banks, which will only cover their foreign exchange income, to punish them for currency manipulation.

Meanwhile, there is also a puzzle: the reduction imports has reduced the current account deficit but, at the same time, resulted in less revenue collection.

Sources say it has been decided, in principle, to impose 1% to 3% import duties to raise around Rs60 billion in additional revenues, but a formal decision was delayed.

Meanwhile, the proposed new duties might be imposed as a levy, which would keep the money outside the federal divisible pool won’t be distributed under the National Finance Commission Award. The non-tax nature would also mean that the amount is not be counted as part of the Federal Board of Revenue (FBR) collection.

The first draft of the presidential ordinance has been prepared but it will require more time in case the government decides to make the windfall income tax on commercial banks part of that.

It is said that the initial plan was to impose up to 3% additional customs duties to compensate for the Rs100 billion shortfalls in custom duties’ annual collection target.

The government has set a customs duty collection target at Rs1.150 trillion, which may be missed by over Rs100 billion in the current fiscal year.

From July through mid-December, imports amounted to $29 billion. But nearly $12 billion or 41 percent of imports were duty free. So far, the imports have contracted by 22 percent, which are hitting the revenue receipts.

In the last fiscal year, the share of import taxes was around 52 percent, which during the first four months of the current fiscal year came down to 45 percent.

Due to slowdown of economic activities, the government has estimated that its annual target of Rs7.470 trillion will be adversely affected by Rs380 billion. The legal challenges have also started undermining the revenue collection of the FBR.

That’s why the FBR on Thursday could not decide about the windfall income tax on the commercial banks while absence of accurate data also was a reason.

An inquiry by the State Bank of Pakistan has stablished currency manipulation during April-June 2022 quarter, sources say. However, the central bank may not be able to impose hefty penalties and whatever amount it will collect would go to the SBP’s coffers.

It is estimated that the total income from the foreign exchange earnings by all the commercial banks during the year 2022 could be around Rs100 billion to Rs110 billion.

The FBR has to determine how much of it was because of currency manipulation. The windfall tax rate could be as high as 40 percent of the foreign exchange earning component of the banks.

Without the windfall tax, the banks will be paying 49 percent income tax in the year 2023, including 10 percent super tax.

The banking sector witnessed a phenomenal growth despite overall meagre economic growth of 3.5 percent in 2021.

Last week, the Sindh High Court struck down the super tax – terming it “discriminatory” and “ultra vires to Constitution” – in a move that will strip the government off of Rs247 billion in revenues and has also exposed the poor working of the tax machinery. But the FBR is still collecting the tax from the companies that had not challenged the levy in the courts.

LEAVE A REPLY

Please enter your comment!
Please enter your name here