Govt to impose flood levy on imports, windfall tax for banks

The government may promulgate a Presidential Ordinance to impose flood levy on imports to raise additional Rs60 billion in revenues but it delayed a decision about slapping a windfall income tax on commercial banks to punish them for currency manipulation.

Sources in the Ministry of Finance said that it has been decided, in principle, to impose 1% to 3% import duties to raise around Rs60 billion in additional revenues. However, these duties might be imposed as a levy, which would keep the money outside the federal divisible pool and would not be distributed under the National Finance Commission Award. Due to its nontax nature, the levy would also not be counted as part of the Federal Board of Revenue collection.

The sources said that the first draft of the Presidential Ordinance has been prepared and subject to the endorsement of the federal cabinet and ascent of the president. The ordinance might be enforced with effect from Sunday. In case the government decides to make the windfall income tax on commercial banks part of the ordinance, it may take some more time, they added. The promulgation of the ordinance may also strengthen the government's case in the eyes of the International Monetary Fund provided it takes enough measures to bridge the revenue shortfall.

The sources said that the 1% to 3% flood levy on imports could be imposed to generate Rs60 billion in revenues. The 1% rate could be charged on imported goods that are currency exempted except on those that are exempted under the 5th Schedule of the Customs Act or under the Vienna Convention. The 2% levy may be imposed on goods that do not fall in the category of luxury items. The luxury items may attract a 3% levy, they added.

The initial plan was to impose up to 3% additional customs duties to compensate for the Rs100 billion shortfalls in custom duties' annual collection target. The government has set a customs duty collection target at Rs1.150 trillion, which may be missed by over Rs100 billion in the current fiscal year. From July through midDecember, imports amounted to $29 billion. But nearly $12 billion or 41% of imports were duty free. So far, the imports have contracted by 22%, which are hitting the revenue receipts. In the last fiscal year, the share of import taxes was around 52%, which during the first four months of the current fiscal year came down to 45%.

Due to slowdown of economic activities, the government has estimated that its annual target of Rs7.470 trillion will be adversely affected by Rs380 billion.

The legal challenges have also started undermining the revenue collection of the FBR. Because of these sensitivities, the FBR on Thursday could not decide about the windfall income tax on the commercial banks. The tax is being proposed to be imposed only on the foreign exchange income part of the commercial banks.

The State Bank of Pakistan has completed an inquiry against the commercial banks and has established currency manipulation during April-June 2022 quarter, according to the government officials.