Karachi: The Sindh High Court has upheld the legality of Section 99D of the Finance Bill 2023, dismissing petitions from commercial banks that challenged the windfall tax. This decision allows the Federal Board of Revenue (FBR) to enforce the tax, leading to the recovery of PKR 23 billion from 16 major banks last week.

According to a statement by AKD Securities Limited, the cumulative collection from the windfall tax is estimated at approximately PKR 28 billion from 18 major banks. Notably, Habib Bank Limited (HBL) and Askari Bank Limited (AKBL) have not yet reflected this tax impact in their financial statements. Estimates indicate a potential earnings reduction of PKR 3.3 per share for HBL and PKR 1.5 per share for AKBL.

The windfall tax provision, introduced in the Finance Bill 2023, aims to capture unexpected gains from factors such as commodity price changes and foreign exchange gains. It applies from the tax year 2023 onwards, with a possible additional tax of up to 50% on such income.

In November 2023, the FBR introduced a mechanism to levy a 40% windfall tax on banks’ foreign exchange income for calendar years 2021 and 2022 through SRO1588(I)/2023. However, the Lahore, Islamabad, and Sindh High Courts had initially suspended its enforcement, citing constitutional concerns and questions about the caretaker government’s authority.

The recent decision by the Sindh High Court may set a precedent for similar cases in the Lahore and Islamabad High Courts, potentially affecting banks like AKBL if similar rulings are made.