Pakistan’s banking sector deserves a fairer narrative

In a country gripped by chronic revenue shortfalls and economic instability, one sector quietly shoulders more than its share — yet is frequently criticised. Pakistan’s banking sector, the country’s largest taxpayer and a critical source of fiscal stability, is often maligned rather than supported. This paradox demands re-examination —and a shift in mindset that continues to distort the public narrative.

In 2024, the banking sector, comprising commercial banks, DFIs, and microfinance banks, contributed an astonishing Rs 1.6 trillion to the national exchequer. This includes Rs 856 billion in direct corporate and income taxes, Rs 63 billion in sales and excise duties, and over Rs 685 billion in withholding tax collected and paid. To put this into perspective, that’s nearly five times more than what banks paid in 2021. Yet, despite this unmatched contribution, banks continue to face criticism, regulatory unpredictability, and the heaviest tax treatment among all sectors.

“The banking sector contributed Rs 644 billion in taxes in 2023 alone, and in a single day facilitated Rs 30 billion in government revenue. Yet, we are being taxed at rates nearly double other sectors. Taxation must be based on income, not balance sheet size or political expediency. We are partners in progress, not targets for fiscal patchwork.”— Zafar Masud, Chairman, Pakistan Banks Association

Banks today pay an effective tax rate of 54 percent, compared to the standard 29 percent paid by most other industries. This disparity is not only disproportionate, it is counterproductive. When institutions that finance infrastructure, businesses, and public services are penalized for their efficiency, the broader economy suffers.

Critics often accuse banks of prioritizing government securities over private sector lending. But this ignores Pakistan’s underlying economic realities, a persistently wide fiscal deficit, underdeveloped capital markets, and a narrow, undocumented tax base. In FY24 alone, banks financed over 99 percent of the government’s budget deficit, ensuring critical expenditures like defence, pensions, and social protection continued uninterrupted. This is not a diversion of resources; it is a stabilising lifeline.

Banks are not turning away from the private sector. They are responding rationally to a high-risk environment, where legal enforcement is weak and formal documentation is scarce. Until structural reforms are achieved, sovereign lending remains the most prudent and often regulatorily encouraged option.

“With 54 percent of the banks’ income directed to the government, it is only fair that we are treated as partners. Time and again, whenever the government has called upon the banking industry, we have always stepped up, a commitment we will proudly uphold in the best interest of Pakistan. As one of the most transparent sectors of the economy, we remain dedicated to contributing to Pakistan’s progress and trust our efforts will be acknowledged.”

— Atif Bajwa, Chairman, Pakistan Banking Summit Steering Committee

Much of the criticism directed at banks is based on generalizations. The sector collectively employs over 200,000 people and is actively increasing gender diversity under the State Bank’s inclusion mandate. While service delivery can always improve, to suggest banks are uniformly exploitative is inaccurate.

Moreover, the banking sector is among the most heavily regulated, audited, and transparent in the economy. It is also among the most forward-looking supporting SMES, agri-finance, housing, and digital transformation, even in a volatile economic climate.

“Profitability should not be treated as a red flag; it is a prerequisite for financial resilience and national progress.”

The broader issue is this, when a compliant and transparent sector like banking is disproportionately burdened with taxation while vast segments of the economy remain undocumented, the incentive structure becomes distorted. No society can progress when responsibility is concentrated on a few formal sectors while others remain unregulated and under-taxed.

Pakistan’s banking sector is not asking for applause—it is asking for fairness in taxation and recognition of its role as a partner in national development. It has delivered when it mattered most. A transparent, tax-compliant sector that supports public finance, SMEs, and digital transformation deserves policy consistency—not punitive treatment. It is time for policymakers and the public to do the same: anchor the debate in facts, and shift the conversation from blame to balance.

Copyright Business Recorder, 2025