A Presidential Decision Is Likely To Bring A Mini Budget:

 Islamabad:The government could issue a presidential order to impose a flood tax on imports to raise an additional 60 billion rupees in revenue, but on Thursday delayed a decision to impose a surprise income tax on commercial banks to punish them for currency manipulation.

Government aims to introduce flood tax on imports to raise additional Rs 60 billion.

It was decided, in principle, to impose import duties of 1% to 3% to raise about 60 billion rupees in additional revenue

 However, these duties could be imposed as a tax, which would keep the money out of the federal divisible pool and not be distributed as part of the National Finance Committee award.

Due to its non-financial nature, the tax will also not be counted in the collection of the Federal Revenue Office.

The sources said that the first draft of the presidential order was prepared and submitted to the Federal Council of Ministers for approval and the inauguration of the President of the Republic. The order can be applied from Sunday.

They added that in the event that the government decides to incorporate the tax on sudden income from commercial banks into the law, it may take a little longer.

Issuing the order may also enhance the government's standing in the eyes of the IMF, provided it takes sufficient measures to make up the shortfall.

The sources said a flood tax of 1% to 3% on imports could be levied to generate 60 billion rupees in revenue.

1% can be charged on currency-exempt imported goods, except for those exempt under Schedule Five to Customs Law or the Vienna Convention.

A 2% tax may be imposed on goods that do not fall under the category of luxury goods.

They added that luxury goods may be subject to a 3% tax.

The original plan was to impose additional tariffs of up to 3% to make up the ₹100 billion shortfalls in the annual tariff collection target.

The government has set a tariff collection target of 1,150 billion rupees, which could miss more than 100 billion rupees in the current fiscal year.

From July to mid-December, imports amounted to $29 billion. But nearly $12 billion or 41% of imports were duty-free. So far, imports have shrunk by 22%, which is affecting tax revenue.

In the last fiscal year, the share of import taxes was about 52%, which in the first four months of the current fiscal year decreased to 45%.

Due to the slowdown in economic activities, the government has estimated that its annual target of 7.47 trillion rupees will be affected by 380 billion rupees. Legal challenges also began to undermine FBR revenue collection.

Because of those sensitivities, the FBR could not rule Thursday on the tax on exceptional income for commercial banks. It is proposed that the tax be levied only on the foreign currency portion of the income of commercial banks.

The State Bank of Pakistan completed an investigation against commercial banks and proved currency manipulation in the April-June quarter of 2022, according to government officials. However, the central bank may not be able to impose heavy penalties and any amount it collects will go into the coffers of the Social Investment Bank.

Sources say the government intends to offset the additional gains made by banks from unexpected taxes.

The decision may not be taken on Thursday due to absence of reliable data about the net additional gains that these banks made on the number of incremental currency transactions.

The matter will now be reviewed again and the tax can be included in the ordinance provided the tax authorities have solid base to determine the legitimacy of the windfall profits.

It is estimated that the total income from the foreign exchange earnings by all the commercial banks during the year 2022 could be around Rs100 billion to Rs110 billion.

The FBR has to determine the amount due to currency manipulation. The unexpected tax rate can be as high as 40% of the foreign exchange earnings component of the banks.

Without a windfall tax, banks will pay 49% income tax in 2023, including a 10% supercharge.

If the FBR allows banks to exclude expenses from the portion of foreign exchange receipts, the rate could be less than 40%.

The banking sector experienced explosive growth despite a weak overall economic growth of 3.5% in 2021. Total bank deposits grew by 17.7% while advances grew exceptionally by 23.4%, due at least in part to recently introduced unhealthy tax measures.Advance Deposit Ratios (ADR) at higher rates.

The overall growth in bank assets was mainly funded by a 17.7% increase in deposits due to Roshan digital accounts and endowment of Rs 15,000 and Rs 7,500 bearer bonds by the government.

Total profit before tax for the banking sector increased by 12.6% from Rs.417 billion in 2020 to Rs.470 billion in 2021.

These measures are being discussed as the FBR faces the daunting task of raising 965 crore rupees in December. This target is even higher than the June 2023 target, which is set on the assumption that the RBF will receive about 260 billion rupees in December in taxes levied in the budget.

For the first half (July-December) of the 2022-23 fiscal year, the government has set a fiscal target of 3.65 trillion rupees.

The Sindh High Court (SHC) last week scrapped up to 10% of excess taxes - calling them "discriminatory" and "extreme against the constitution" - in a move that would deprive the government of 247 billion rupees of income and also exposed flaws in the tax system. .

But the FBR still collects tax from companies that have not challenged the tax in court.