KARACHI: The Islamabad High Court (IHC) on Wednesday temporarily suspended a one-off 40 per cent tax imposed by the government earlier this month on bank profits reaped from foreign exchange transactions in the past two years.

The court has suspended a statutory regulatory order (SRO) in this regard until Dec 8.

According to the Prime Minister’s Office (PMO), the cabinet approved a proposal of the Federal Board of Revenue (FBR), which said the Finance Act 2023 introduced Section 99D to the Income Tax Ordinance 2021 to enforce the imposition of the tax on windfall profits made by banks.

The federal cabinet’s approval of the windfall tax came after strong criticism of banks that they had earned a hefty Rs110 billion in profits in 2021 and 2022 from the speculative rupee-dollar trade. The decision was not in line with analysts’ expectations as most considered the tax imposition less likely. The tax could help the government to generate over Rs40bn.

On Wednesday, Justice Sardar Ejaz Ishaq Khan of the IHC also issued notices to the revenue division secretary and others for the next hearing.

The court order came after Askari Bank Ltd filed a writ petition against the SRO issued on Nov 21, subjecting banks to 40pc tax on their windfall income that was to be computed as per the formula given in the SRO.

The FBR lawyer argued that the legislation in this regard was to remain operative until it was declared ultra vires.

However, the judge noted that the petitioner’s lawyer rightly pointed out that the interim relief was sought with respect to the SRO, which was an executive act and not legislation, and thus apparently not covered by the judgements cited by the FBR’s counsel.

“The foregoing submissions, therefore, demonstrate not only a prima facie case but also that the ingredients of the balance of convenience and irreparable loss operate in favour of the petitioner. Resultantly, the operation of the impugned SRO shall remain suspended till the next date of hearing,” Justice Khan said in his order.

Published in Dawn, November 30th, 2023