Pakistan has reversed its plan to impose a new tax on banks' profits from government debt, opting instead for a higher overall income tax. The original plan aimed to encourage lending to the private sector by requiring banks to increase their advances-to-deposit ratio (ADR) to over 50% or face a penalty tax. Banks resisted the measure, leading to legal challenges and deposit fee increases. The government will now raise the income tax on banks to 44% and gradually decrease it over the next few years.
Pakistan has scrapped plans for a new tax on banks’ profits on government debt , just days before a critical deadline and following a backlash from lenders. The proposed levy was intended to boost the south Asian country’s sluggish economy by encouraging banks to lend more to the private sector.
An economic contraction, soaring inflation and interest rates that touched 22 per cent have left Pakistan with one of the lowest rates of domestic credit to the private sector as a percentage of GDP, according to the World Bank. At the same time, Pakistan’s banks have enjoyed bumper profits from returns on government-issued debt, providing them a disincentive from taking on new loans.
Pakistan Banks Tax Government Debt Lending
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