SHC enforces section 99D on commercial banks

Sindh High Court (SHC) has dismissed petitions filed by commercial banks challenging the legality of the windfall tax, meaning Section 99D and SRO1588(I)/2023 remain enforceable. Consequently, FBR has now recovered PkR23bn from 16 major banks last week imposed under section 99D of Finance Bill 2023.

However, we estimate the cumulative collection of ~PkR28bn from major eighteen banks.

Notably, HBL and AKBL have yet to account for the impact of the windfall tax in their financials. Our estimates suggest an earnings hit of PkR3.3/1.5 per share for HBL and AKBL, respectively. In the event that the Lahore High Court (LHC) and Islamabad High Court (IHC) follow the Sindh High Court’s precedent in dismissing stay orders on Section 99D and SRO1588(I)/2023, AKBL would abe affected under this aswell.

Windfall tax provision 99D was introduced in Finance Bill 2023 with the purpose to capture windfall gains across sectors arising from exogenous factors including commodity price fluctuations and FX gains. Applicable from TY 2023 and onwards, additional tax on such income was deemed upto “50% of the windfall income”.

In Nov’23, the FBR implemented a mechanism to impose a 40% windfall tax on banks’ FX income for CY21 and CY22 through SRO1588(I)/2023. However, High courts of Lahore, Islamabad, and Sindh suspended its imposition, citing constitutional concerns and question on the caretaker government’s authority. The court granted interim relief, pausing enforcement during that time.

 Courtesy – AKD Research