Prime Minister Shahbaz Sharif has decided to maintain the 15% additional income tax on banks, rejecting any relief for the sector. This decision comes as the government finalizes new tax measures to be announced with the approval of the Budget 2024-25 today (Friday).

Two cabinet members confirmed that the PM’s intervention followed public backlash against tax relief for banks, which have seen high profits due to the government’s borrowing needs. Finance Minister Ishaq Dar also advised the PM against offering the tax break.

The government plans to borrow Rs24 trillion from commercial banks next fiscal year and spend Rs9.8 trillion on interest payments. Banks argue that the 15% tax on loans to the government is unfair.

This move prevents banks from benefiting by approximately Rs60 billion, despite making Rs960 billion in net profits last year. The Federal Board of Revenue (FBR) had proposed calculating tax based on average annual lending to avoid year-end adjustments by banks.

The standard tax rate for banks is 39%, but it can go up to 55% based on their Advances-to-Deposit Ratio (ADR). Currently, banks have an average ADR of 41.8%, leading to a 10% tax rate. This decision aims to close loopholes and ensure fair taxation for the banking sector.

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