ISLAMABAD: The Federal Board of Revenue (FBR)’s notification to impose a 40 percent additional tax on windfall income, profits and gains on banks would become invalid if not approved by the National Assembly by February 19, 2024.
According to a note of Advocate Amayed Ashfaq Tola, international tax law expert, issued on Friday, the federal government has exercised its powers vested under Section 99D(2) of the ITO and issued SRO1588(I)/2023 dated 21st November 2023. Through the said SRO, the government has specified the method to calculate the windfall income and the tax rate at which such windfall income will be charged.
As per section 99D(3) of the Income Tax Ordinance 2021, the federal government is required to place the notification before the National Assembly latest by February 19, 2024, whereas, the National Assembly is not expected to be constituted by then even if the general elections are carried out as per schedule.
The due date of payment seems to be fixed without any critical thinking and in haste. The said notification would also become invalid if not approved by the National Assembly by 19th February 2024 as per section 99D(3) and Article 142 of the Constitution.
The windfall income has been specified to be the difference of foreign exchange income of subject year and the average foreign exchange incomes for the preceding six years for both tax years, 2022 and 2023.
However, for the tax year 2023, windfall income of tax year 2022 has been reduced from the sum of foreign exchange incomes of preceding six tax years for the purpose of calculation of average of preceding six tax years.
Another possible issue that may be subject to litigation is the retrospective application of Section 99D, as it may unlawfully vitiate past and closed transactions and the aggrieved persons may rely upon the judgement of the High Court of Sindh in 2011 PTD 1558.
The normal tax rate for banking companies is 39 percent for tax year 2023 (35 per cent for 2022), whereas, the banking companies are also subject to a 10 per cent super tax year for tax year 2023 (four per cent for tax year 2022). This means a banking company will be subjected to 89 percent tax in case of its forex income in tax year 2023 (79 percent for tax year 2022).
This 89 percent still does not include the effect of administrative expenses (which may be 20-25 percent of the income) incurred by the banks, which if accounted for, may make it virtually a confiscatory taxation and it may also lead to litigation by the aggrieved persons.
Copyright Business Recorder, 2023
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