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Govt mulls slapping up to 70% Windfall Tax on banking sector’s lofty profits

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  • Sources says govt considering slapping fixed tax rate between 50%- 70%. 
  • Govt determining exact levels of profits extracted through recent currency manipulation by banks.
  • Officials working on proposal studied Windfall Tax imposed by UK, Austria, Italy, Australia and other countries.

ISLAMABAD: The government is considering slapping a Windfall Tax on the profits of the banking sector in the range of 50% to 70% similar to the one used in the West, which imposed the same tax on energy companies, reported The News on Friday.

“Different proposals are under consideration for imposing the Windfall Tax on profits earned by the banking sector. A fixed tax rate from 50% to 70% is expected to be slapped for getting revenues out of the lofty profits earned by the banks,” officials, who spoke on the condition of anonymity, told the publication.

However, sources in the Federal Board of Revenue (FBR) said that the proposal is yet to be approved by the government though Finance Minister Ishaq Dar had hinted in his press briefing on Wednesday that the government would move ahead with the Windfall Tax on the banking sector.

The government is ascertaining the exact levels of windfall profits extracted by the banking sector through recent currency manipulation. The policymakers may slap a tax at a rate whereby there is no threat of choking the banking sector.

The tax officials who are working on this proposal studied the Windfall Tax imposed by the United Kingdom, Austria, Italy, Australia and other countries whereby the energy companies had earned lofty profits in the aftermath of Russia-Ukraine war, so the respective governments had imposed the Windfall Tax to generate revenue. Even the Biden administration in the USA had threatened to impose Windfall Tax.

The recent energy crisis across Europe as a result of COVID-19, poor market decisions and the Ukraine war have pushed energy prices to all-time high. 

Countries across Europe were moving to build up reserves in the face of restricted gas supplies to minimise the effects of a cold winter. At the same time, some governments were even considering country-wide blackouts and energy rationing to ensure that, at the very least, there was enough gas to heat homes.

“The government expects that in case of imposition of 50% to 70% fixed tax rate on lofty bank profits, the government can fetch Rs25 to Rs35 billion revenue generation,” said one official.

On the proposed Flood Levy, the government might grant an exemption on import of basic food items and raw materials of essential or life-saving drugs. 

The levy could be in the range of 1% to 3% on all other imported items. It is estimated that the government can fetch Rs60 billion in the remaining six months of the current fiscal year 2022-23.

Sources said the government will prefer the Flood Levy because it will not become a part of the Federal Divisible Pool (FDP) under the NFC Award for distribution among the provinces, so the collected money will only be used by the federal government.

On the other hand, the FBR seeks to meet the annual tax collection target of Rs7,470 billion for the current fiscal year and has so far collected Rs3,428 billion in the first six months (July-Dec) period. 

Now the tax authorities will have to collect Rs4,042 billion for materialising the desired tax collection target till June 30, 2022.

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Prior to the budget address, the PSX-100 index rebounds following a continuous fall for 7 straight days.

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The Pakistan Stock Exchange rebounded after a continuous decrease of 7 days and surpassed the threshold of 73,000 points, experiencing a surge of more than 500 points in the benchmark.

The PSX Tuesday experienced a decline of more than 650 points, potentially due to tax measures being considered in the federal budget for the fiscal year 2024-25.

The investors are concerned about the State Bank of Pakistan (SBP) reducing the interest rate, as well as the unresolved circular debt, which has increased to over Rs5.3 trillion.

The KSE-100 index concluded the day with significant losses, at its lowest point.

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Pakistan experiences substantial expansion in the information technology sector.

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Pakistan experienced significant development in the exports of its IT sector, reaching a total of $2.283 billion, as stated in a recent Economic Survey Report.

The increase in exports emphasized the rising global demand for IT services from Pakistan and the sector’s impact on the national economy.

The survey demonstrated that IT freelancers contributed $35 million in remittances, highlighting their significance in the IT industry.

The study data indicates a significant rise in the number of broadband and telecom customers nationwide, with broadband users reaching 135 million and telecom users growing to 194 million.

Earlier this week, the federal government has suggested a substantial 357 percent rise in the budget for the IT sector for the fiscal year 2024-25.

As to reliable sources, the Ministry of IT has been granted a budget of Rs 27.43 billion in the development budget, out of which Rs 6.28 billion has been allotted for the implementation of 15 new projects.

The government has additionally suggested allotting Rs 21.15 billion for projects that are currently in progress, as well as Rs 3.5 billion for the Digital Economy initiative.

Additional noteworthy allocations consist of Rs 1 billion for fostering innovation in the IT sector, Rs 50 million for the digitalization of the national assembly, and Rs 300 million for the implementation of smart office projects in government ministries.

The government has additionally suggested investing Rs 9.92 billion for the Islamabad Technology Development Park and Rs 6.78 billion for the creation of an IT park in Karachi. The budget additionally comprises a proposition for an allocation of Rs 1 billion for the Cybersecurity Fund for the Digital Pakistan initiative.

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Pakistan will unveil its Rs18 trillion budget today.

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The budget will be presented by Senator Muhammad Aurangzeb, the Federal Minister for Finance and Revenue, on the floor of the National Assembly.

The government sources stated that the budget will focus on alleviating the hardships faced by the people, revitalizing the agriculture sector, advancing information technology (IT), and enhancing exports.

The administration asserted that the budget will encompass not only fiscal management and revenue mobilization, but also measures for economic stabilization and growth, reduction in non-development spending, job creation, and people-friendly policies aimed at achieving socioeconomic prosperity for the country.

The preparations for the announcement of the federal budget for fiscal year 2024-25 are progressing actively and in accordance with the specified dates.

The budget is being formulated through extensive collaboration among all the departments and ministries responsible for budget-related activities, encompassing the presentation of the budget before Parliament and the initiation of the Economic Survey.

It is important to note that the budget is being presented while Pakistan is in discussions with the International Monetary Fund (IMF) for a potential package of up to $8 billion.

Finance Minister Muhammad Aurangzeb presented the Economic Survey of Pakistan 2023-24 on Tuesday. According to the survey, the country’s gross domestic product (GDP) grew by 2.38 percent, surpassing the projected objective of 2 percent.

During the launch event of the Economic Survey of Pakistan 2023-24, Federal Minister for Finance Senator Muhammad Aurangzeb stated that despite difficulties, the country has made substantial advancements in attaining macroeconomic stability. Notably, there has been a remarkable 30 percent increase in revenue collection, a decrease in the current account deficit, a reduction in inflation, and a stable currency.

The finance minister stated that this position demonstrated a significant reversal from a fragile economic state, marked by a 0.2% fall in GDP, a 29% devaluation of the rupee, and a reduction in foreign exchange reserves, which had decreased to a level sufficient to cover only two weeks of imports.

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