Extra levy on banks’ windfall income: Income Tax law’s Section 99D constitutes valid charging provision: PHC

ISLAMABAD: Peshawar High Court (PHC) has declared that the section 99D of the Income Tax Ordinance constitutes a valid charging provision to collect an additional levy on windfall income of the banks.

In this regard, the PHC has issued a judgment against a Peshawar based bank.

The bank has questioned the vires of Section 99D of the Income Tax Ordinance, 2001 (“Ordinance”), inserted by Section 7(9) of the Finance Act, 2023, read with Rule 7CB of the Seventh Schedule and SRO 1588(1)/2023 dated 21.11.2023. The provision envisages an additional levy on the windfall gains of banks arising from foreign currency fluctuations, and by virtue of the impugned SRO.

According to the judgement of the PHC, the section 99D of the Ordinance constitutes a valid charging provision and may, by its terms, operate with retrospective effect.

PHC has also declared that section 99D of the Ordinance and SRO 1588(1)12023 dated 21.11.2023, in no manner, unsettle the portion of income, profit, and gains accrued to the Petitioner-banking company for a tax period prior to 2023, which had already been passed on to the shareholder before the promulgation of the SRO ibid, being past and closed transactions.

The respondent shall re-determine the liability of the Petitioner-Bank, PHC order added.

The bank has questioned the vires of Section 99D of the Income Tax Ordinance, 2001 (“Ordinance”), inserted by Section 7(9) of the Finance Act, 2023, read with Rule 7CB of the Seventh Schedule and SRO 1588(1)/2023 dated 21.11.2023. The provision envisages an additional levy on the so-called windfall gains of banks arising from foreign currency fluctuations, and by virtue of the impugned SRO.

Consequently, any subsequent imposition of tax, particularly under Section 99D of the Ordinance, would be inapplicable to these years, which constitute past and closed transactions. It is urged that the Petitioner had structured its financial commitments, including investments and dividend disbursements to shareholders, on the basis of the settled legal position, and thus the impugned provision impermissibly unsettles vested rights. It is further argued that the income now sought to be subjected to levy under Section 99D had already borne tax at the rates of 35% and 39%, respectively, and that any additional charge thereon would amount to impermissible double taxation, rendering the measure confiscatory in nature.

Conversely, learned counsel for the FBR contended that the rationale underlying the windfall tax is to capture the extraordinary profits reaped by the banking sector.

The language of Section 99D of the Ordinance does not explicitly impair/unsettle these past and closed transactions. However, PHC opined, it charges an additional tax on the earnings, profits, gains, if it remains with the company (as reflected in the financial statements) in any form, including in the form of investments and thus, in that event, it would be subject to the imposition of tax under Section 99D of the Ordinance. However, as far as the said profit which is out of the hands of the company and paid to the shareholder, either in cash or through issuance of bonus shares, it becomes a closed transaction for that tax/financial year, and Section 99D of the Ordinance does not give any impression to charge the income of the shareholders of a banking company, PHC order added.

Copyright Business Recorder, 2025