Up to Rs90bn shortfall in tax collection likely in December

ISLAMABAD: With the promulgation of Presidential Ordinance for slapping 44 percent tax on banking sector profits, the Federal Board of Revenue (FBR) is expecting collection of Rs70 billion with deadline of corporate sector returns. However, the tax collection target envisaged for December 2024 is projected to face a shortfall of Rs80-90 billion.

Earlier, the maximum rate on the banking sector stood at 55 percent but after an agreement, the average rate of tax was reduced to 44 percent for the tax year 2025. Under the agreement, the FBR is now expecting Rs70 billion till December 31, 2024 from the banking sector, which would help the tax machinery to reduce its shortfall.

The FBR had so far faced a shortfall of Rs340 billion in the first five months (July-Nov) period of the current fiscal as its collection stood at Rs4,295 billion against the desired target of Rs4,635 billion. Now with the expected shortfall of Rs80-90 billion, the overall shortfall in the FBR target might go up to Rs420 or Rs430 billion in the first half (July-Dec) of the current fiscal.

As an indicative target agreed with the International Monetary Fund (IMF), the FBR is supposed to collect Rs6,009 billion till end of December and the tax machinery is required to collect Rs1,714 billion within the deadline.

According to the Presidential Ordinance promulgated on December 29, transactions which are past and closed would not be affected. The banks would pay 44 percent tax in tax year 2025, 43 percent in 2026, and 42 percent in 2027. For small companies, 20 percent tax rate would be made applicable in tax year 2026. For all other companies, the standard rate of 29 percent would remain applicable.

According to the ordinance, amendments in the Seventh Schedule, Ordinance XLIX of 2001.—the said Ordinance, in the Seventh Schedule, in rule 6C, in sub-rule (6A), (a) for the expression ‘2022 and onwards’, the figure ‘2023’ shall be substituted; and (b) the existing explanation appearing at the end, shall be numbered as Explanation-1 and thereafter the following Explanation-2 and the proviso shall be added.

“For removal of doubt, it is clarified that the term ‘gross advances and deposit’ referred to in this sub-rule for the purpose of computing gross advances to deposit ratio shall be the amount of ‘gross advances and deposit’ at the end of the accounting period and as disclosed in the annual audited accounts: Provided that from tax year 2025 and onwards profits and gains of a banking company shall be subjected to tax rates under Division-II of Part-I to the First Schedule and nothing contained in this sub-rule shall apply to compute part or whole of the tax liability of a banking company.”