ByIslamabad, Pakistan: President Asif Ali Zardari has introduced sweeping changes to Pakistan’s tax framework through the promulgation of the Income Tax (Amendment) Ordinance, 2024. This ordinance, which amends the Income Tax Ordinance, 2001, is a critical step toward bolstering revenue generation and enhancing transparency within the tax system.
Key Highlights of the Amendment
Revised Tax Rates for Banking Companies:
The ordinance has introduced a phased approach to increasing the tax rates for banking corporations, as follows:
2025 Tax Year: The tax rate has been raised to 44%, projected to generate an additional Rs70 billion by December 31, 2024.
2026 Tax Year: The rate will reduce slightly to 43%.
2027 and Subsequent Years: The tax rate will further decrease to 42%.
Tax Rates for Other Businesses:
Small Companies: The tax rate remains steady at 20%.
Other Companies: The tax rate continues at 29%, providing stability for non-banking corporate entities.
Calculation of Advances-to-Deposit Ratio
The ordinance also provides clarity on calculating the gross advances-to-deposits ratio for banking corporations. The ratio is determined based on the “gross advances and deposits” reported in the banks’ annual audited financial statements at the close of the accounting period. This provision ensures transparency and uniformity in reporting by financial institutions.
Broader Implications
These revisions reflect the government’s focus on ensuring a fair contribution from high-earning sectors like banking while maintaining stability for smaller businesses. The tiered reduction in banking tax rates over the years signals a balanced approach to encouraging growth in the financial sector while addressing immediate fiscal needs.
The Income Tax (Amendment) Ordinance, 2024, represents a strategic effort to enhance revenue collection and tax compliance in Pakistan. By targeting high-earning sectors like banking and providing clarity in tax administration, the ordinance lays the groundwork for sustainable fiscal growth.
These legislative updates mark a significant step forward in modernizing Pakistan’s economic and administrative landscape.
