Govt faces hard choices

The government faces a hard choice whether to abolish up to 15% additional tax on bank profits made by extending loans to the cash-starved finance ministry or tighten the existing law to recover about Rs60 billion more from financial institutions next year. Sources told The Express Tribune that two opposing forces were working to influence the budget – one seeking relief for banks despite the potential heavy taxes on all major sectors and the second wanting to strictly enforce the law to collect taxes on banks’ lending to the government. The Federal Board of Revenue (FBR) has proposed to the International Monetary Fund (IMF) that the existing tax on banks’ lending to the government needs to be tightened to plug a loophole that banks exploit to avoid up to 15% additional tax. The additional income tax had been introduced in 2022 to encourage banks to give loans to the industry instead of making safe lending to the government. However, the banks often avoid the levy by readjusting their lending to the government just before the due date of December 31 for tax payment.