• Govt also considering windfall tax on lofty profits in banking sector.
• Drops proposal to jack up CVT on luxury, imported vehicles.
• Govt to grant exemption on import of essential food items.

ISLAMABAD: The government may impose a flood levy ranging from 1-3% on all imports through a presidential ordinance keeping in consideration a waiver to basic food items and raw medicine material imports, The News reported Wednesday.

The government is also considering a windfall tax on lofty profits in the banking sector. The profit earned by the banks in the form of alleged currency manipulation is being bifurcated by the taxation authorities with normal income to impose the additional tax.

Another proposal to jack up the capital value tax (CVT) on luxury and imported vehicles has been dropped by the government. 

The International Monetary Fund (IMF) also opposed the amnesty scheme for the regularisation of vehicles registered in Federally Administered Tribal Areas (FATA) and Provincially Administered Tribal Areas (PATA) since 2018, when these districts merged into Khyber Pakhtunkhwa.

Official sources confirmed to The News that the State Bank of Pakistan (SBP) had reported lofty profits of Rs100 billion by commercial banks in the first three quarters (Jan–Sept) of the current calendar year 2022, compared to Rs37 billion in the same period of the last year 2021. 

The SBP data showed that the banks had earned Rs63 billion in extra profits. So a windfall tax is under consideration to get the due share for the national exchequer.

Citing the example of energy companies that earned lofty profits in the aftermath of the Russia and Ukraine war, the Western world slapped a windfall tax and the same happened in the case of the banking sector in Pakistan.

“We are also considering the windfall tax cautiously,” said one official, who added that the litigation on the super tax in the superior judiciary was underway, so the government wanted to move ahead in a manner that it might not be struck down by the courts.

“There is also a need to ascertain the exact level of windfall profits after excluding the normal increase in profits of banks,” said the official, who added that it would be hard to declare the whole extra profit of Rs63 billion as part of the windfall profit of banks.

There is a need to calculate the windfall profits of banks carefully, so it is assumed that the commercial banks had earned an extra profit in the range of Rs50 billion, and this amount should be taxed as windfall tax.

There are different rates under consideration, and the government will finalise it if this proposal gets approval from all relevant forums in the coming few days. 

The government is likely to issue an ordinance to that effect to appease the IMF and pave the way for a staff-level agreement to be reached within the next month.

Finance Minister Ishaq Dar is expected to meet the IMF delegation on the sidelines of a donors’ conference, which will be held in Geneva on January 9, 2023, to rally financial support for the flood-affected areas in Pakistan.

On the proposed flood levy, the sources said that the government would grant an exemption on the import of onions, tomatoes and other essential food items, as well as medicines and their raw materials, but a levy in the range of 1-3% will be slapped on all other imported items. 

This revenue measure will fetch Rs60 billion in the remaining six months of the current fiscal year.

The Federal Board of Revenue of Pakistan has been currently busy identifying those sectors that had earned lofty profits in the last fiscal year like banking and beverage. 

It is yet to be seen how the government decides to take action to fetch the additional tax and non-tax revenues to satisfy the IMF and revive the stalled programme.