The federal cabinet has approved the introduction of an Income Tax Ordinance aimed at adjusting the Advance Deposit Ratio (ADR) for banks, with the goal of generating an additional Rs 70-75 billion by the end of December 2024. However, the ordinance is pending the President’s signature before it can be officially enacted.
Under the proposed changes, banks’ profit calculation based on ADRs will shift from a range of ratios to a fixed maximum slab. Specifically, the banking sector’s tax rate is set to increase from 39% to 44%, with an expected Rs 75 billion in tax revenue from the sector. As of November 29, the ADR of banks has reached nearly 48%.
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The decision follows a high-powered committee formed by Prime Minister Shehbaz Sharif, led by Deputy Prime Minister Ishaq Dar, to explore options for taxing bank profits earned from investments in government securities. The committee includes top officials from the finance, law, and banking sectors and is tasked with reviewing the current legal framework and proposing alternative fiscal schemes to ensure the government reaches its revenue targets by December 2024.
The committee is also expected to recommend non-fiscal measures to encourage more bank lending to the private sector.
