Tax on banking sector enhanced to 42pc from 39pc

Finance Minister Miftah Ismail unveiled the federal budget with a total outlay of Rs9.5 trillion in the National Assembly, targeting economic growth of at least 5% during fiscal year 2022-23.

The budget comes at a time when Pakistan's economy remains engulfed in a balance of payments' crisis, and engaged in talks with the International Monetary Fund (IMF) over revival of the stalled Extended Fund Facility (EFF).

Finance minister says this, along with other measures, will help promote the film and culture industry.

Miftah says Rs364 billion has been allocated for the Benazir Income Support Programme (BISP), whereas Rs12 billion has been allocated for subsidies to be offered at Utility Stores Corporation.

FBR's tax revenue target has been raised to Rs7,004 billion, which includes provincial allocation of Rs4,100 billion, Miftah says. Miftah says a family with household income of less than Rs40,000 will be given a transfer of Rs2,000. The poor-income group needs to be supported, he says.

"This group buys goods that are produced in the country. We need to support them for inclusive, sustainable growth."

"Bringing economic stability is our top priority. The basic problem of our economy is that a growth rate of 3-4% doesn't help our growing population, whereas a growth rate of 5-6% leads to a current account deficit."

A meeting was called on Tuesday at the State Bank of Pakistan (SBP), where the top 8-10 banks were warned by the central bank on the request of the Ministry of Finance.

According to a source present in the meeting, bank treasuries were called to the SBP after the finance ministry expressed displeasure with the borrowing rates and the current exchange rate. The meeting discussed bank participation in the Treasury Bills (tbills) and Pakistan Investment Bonds (PIBs) auctions, and participation in money markets, after which the SBP told the banks to start bidding lower in the auctions and talked about the threat of the government imposing a super tax on fixed income earnings in the case banks did not bring down yields.

Banks were also cautioned on their Foreign Exchange (FX) activities. As per sources present, the SBP told banks to bring the exchange rate down in the interbank even if it means to incur losses. The Central Bank told treasurers that it was an issue of national importance and that incurring losses were part of having the privilege of running banking businesses.

The source explains that the SBP is asking banks to sell dollars to customers without being allowed to buy them back from the inter-bank market. This exposes banks to changes in the FX rate, which could also mean potential loss of money for banks.

Moreover, the bank treasurers present in the meeting were warned that if the banks did not comply, bank Presidents would be called in for a one-on-one meeting for a "dressing down" by the SBP. Profit reached out to the SBP for a comment but could not get one till the filing of this story.

The SBP acting on the behest of the government does draw questions onto the autonomy of the central bank that is to act without government or political pressure.

Intervening in the market because the Ministry of Finance is not pleased by the money and securities market is not under the SBPs mandate, especially when it is encouraging the banks it regulates to incur losses.