Govt to Raise Rs70 Billion by Dec 31 as Banking Tax Rate Hits 44% under New Ordinance

President Asif Ali Zardari on Monday night issued the Income Tax (Amendment) Ordinance, 2024, introducing major changes to bank taxation by amending the First and Seventh Schedules of the Income Tax Ordinance, 2001.

The ordinance sets a 44% tax rate for banking companies for the tax year 2025, reducing to 43% in 2026 and 42% in 2027 and beyond. Small companies will continue with a 20% tax rate, while other companies remain taxed at 29%.

The Federal Board of Revenue (FBR) aims to collect Rs70 billion from banks by December 31, 2024, to address the current fiscal year’s revenue shortfall.

The ordinance also specifies the method for calculating the gross advances-to-deposit ratio for banks. It mandates using the amounts of “gross advances and deposit” at the accounting period's end, as reported in annual audited accounts.

From 2025 onwards, banking companies’ profits and gains will be taxed under Division-II of Part-I of the First Schedule, eliminating the role of the gross advances-to-deposit ratio in determining tax liability.

These measures are designed to enhance revenue collection and support fiscal targets amid ongoing economic challenges.