March 30, 2023
Banking Pakistan

Bank Profits Could Fall Up to 11% if Govt Taxes Forex Income

The imposition of a 10-30 percent tax on the banking sector’s foreign exchange income will impact the profits of banks by 4-11 percent.

According to Topline Securities, if the government imposes an additional 10-30 percent tax on banks’ foreign exchange income then it could collect an additional Rs. 12-36 billion as the underlined income could touch Rs. 120 billion for the calendar year 2022.

Finance Minister Ishaq Dar in a recent press conference stated that the government is planning to impose a tax on banks’ foreign exchange income to ramp up tax revenues.

The government and the central bank have recently been very critical of the excessive gains made by banks due to currency volatility. Recently, State Bank of Pakistan (SBP) governor Jameel Ahmed informed National Standing Committee on Finance and Revenue that investigations against leading banks have been launched regarding the role of banks in exchange rate manipulation.

SBP has not yet penalized banks for excessive gains, however, a higher tax on the foreign exchange income of the bank is under consideration.

To recall, the foreign exchange income of listed banks as reported under the head of ‘foreign exchange income’ of bank’s P&L surged to Rs. 89 billion in 9M2022, which is up from just Rs. 32 billion in 9M21 and was much higher than its historical averages. It is important to note that due to falling FX reserves, PKR remained under severe pressure and weakened by 23 percent against US$ in 9M2022.

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