Windfall income tax stay order issued by IHC

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Windfall income tax stay order issued by IHC. A high court judgment issued in Islamabad on Wednesday has stayed the government’s move to impose a windfall tax on banks to replace the government’s decision to charge a windfall tax on foreign exchange dealings, a move analysts had deemed detrimental to the foreign exchange sector.

As per The News, banks are being referred to as windfall profits as they have not been able to reduce or increase their profits in the past as a result of sudden fluctuations in the value of the Pakistani rupee against the dollar, which has been referred to as a “non-starter” by several analysts.

Justice Sardar Ejaz Ishaq Khan of the Islamabad High Court issued the three-page order in response to a petition submitted by a private bank challenging the caretaker government’s decision – which was intended to generate revenue during this time of economic hardship. By November 30, the national exchequer will receive the funds that the banks have been asked to deposit into it.

As stated above, “the foregoing submissions […] demonstrate not only that the petitioner has a prima facie case, but they also demonstrate that the balance of convenience and irreparable loss factors in favor of him. In light of the above, the operation of the impugned SRO shall remain halted until the next hearing date can be scheduled.”

A new rule issued by the caretaker government earlier this week insists that banks must now pay a 40% tax on windfall income derived from foreign exchange transactions within the last two years as per the rules issued by the government.

On Wednesday, the government announced that it had made a decision to broaden its revenue base and penalize banks involved in massive currency speculation, as part of the government’s effort to increase its revenue.

The government has decided to tax windfall earnings made by banks in 2021 and 2022 based on subsection (2) of section 99D of the Revenue Tax Ordinance of 2001 as set forth in the statutory regulatory order (SRO) issued by the Federal Board of Revenue (FBR). This tax formula is defined in the SRO issued by the Federal Board of Revenue.

Optimums Research analysts estimate that in 2021 and 2022, banks will be generating a windfall income of Rs87.948 billion from their forex transactions. As a result of these two years, banks are expected to collect approximately Rs35.18 billion in taxes from individuals and companies.

The extreme volatility in the Pakistani rupee last year, as well as its record lows in relation to the US dollar, prompted authorities to suspect manipulative activities on the part of banks and exchange businesses.

Due to the country’s foreign exchange crisis, the local currency had experienced a great deal of volatility, which resulted in large profits for banks due to the fact that they were involved in currency speculation at that time.

It was announced in June that the PDM-led government would impose an “additional tax” on income, gains and profits not exceeding a rate of 50%. In the Income Tax Ordinance 2001, the FBR included a new section “99D” (Additional tax on certain income, profits, and gains) through the Finance Bill 2023, which was enacted by the FBR.

It is noted by the IHC that Section 99D appears “inchoate” because it does not detail what happens if the National Assembly disagrees with the calculation of the windfall income or the rate of additional tax that is chosen by the federal government. In spite of the precarious existence of the progeny of a charging section, the benefit of the ambiguity over the precarious existence of a charging section can only be enjoyed by the taxpayer.

Accordingly, the SRO can only be viewed as being kept in abeyance until it has been approved by the National Assembly (assuming that all other legal grounds supporting the department’s position would also apply thereafter),” the statement added.

That news provided by timenews.

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