PTBP Web Desk
The revenue shortfall, President Asif Ali Zardari promulgated the Income Tax (Amendment) Ordinance 2024 on Monday night. This ordinance introduces major changes to the Advance Deposit Ratio (ADR) of banks, setting the stage for a projected revenue collection of Rs70 billion by December 31, 2024. The increased taxation will be a pivotal step in helping the Federal Board of Revenue (FBR) narrow the gap in its tax collection targets.
Under the new ordinance, a 44% tax will be levied on the banking sector for the tax year 2025. This rate will reduce to 43% for the tax year 2026 and further decrease to 42% for the tax year 2027 and onwards. Comparatively, smaller companies will continue to pay a tax rate of 20%, while other companies will face a 29% tax rate.
The ordinance amends both the First Schedule and the Seventh Schedule of the Income Tax Ordinance, 2001, specifying distinct tax rates for banking companies and other types of firms. This revision ensures a structured approach to taxing different corporate entities, with a clear focus on boosting revenue from the financial sector.
The ordinance stipulates that the “gross advances and deposit ratio” will be calculated based on the figures at the end of the accounting period as disclosed in the annual audited accounts. From the tax year 2025 onward, banking profits and gains will be subjected to the revised tax rates under Division-II of Part-I to the First Schedule. These changes will not only ensure a higher contribution from banks but also streamline the methodology for determining tax liabilities.
The FBR anticipates collecting Rs70 billion from the banking sector by the end of 2024. This inflow will be crucial in addressing the persistent tax collection shortfall. By targeting the financial sector, the government aims to bolster its revenue streams without imposing undue burdens on smaller companies or individual taxpayers.
The introduction of the Income Tax (Amendment) Ordinance 2024 highlights the government’s reliance on the banking sector as a major contributor to national revenue. This move aligns with broader fiscal strategies aimed at stabilizing the economy and meeting expenditure demands. While banks are expected to shoulder a heavier tax burden, the reduced rates over subsequent years reflect a long-term vision to balance fiscal pressure with economic sustainability.
Although the ordinance is expected to generate substantial revenue, it may also pose challenges for banks, particularly in terms of profitability and operational costs. Higher taxes could impact their ability to lend or invest, potentially affecting economic growth. However, the phased reduction in tax rates indicates a calculated approach to mitigating such risks.
