KARACHI: Earnings of commercial banks are expected to drop by 4-11 per cent for 2022 if the government imposes a new tax on their foreign exchange income.

Finance Minister Ishaq Dar said in a recent press conference that the government was planning to ramp up its tax revenues by levying an additional tax on banks, which have made “excessive gains” on the back of a high volatility in the currency market.

Topline Securities said in a research note issued on Thursday a 10-30pc tax on banks’ foreign exchange income can fetch the government additional Rs12-36 billion. That’s because the research house expects banks will post collective foreign exchange income of around Rs120bn for 2022.

State Bank of Pakistan (SBP) Governor Jameel Ahmed recently told a standing committee of the National Assembly that the central bank was undertaking an investigations into the role that leading banks played in the exchange rate’s manipulation in recent months.

Foreign exchange income of listed banks amounted to Rs89bn in January-September, which is almost 2.8 times of Rs32bn collected in the comparable period a year ago. The latest number is “much higher” than the historical average, the research report said.

Pakistan’s foreign exchange reserves have been in consistent decline, putting the rupee under severe pressure. The local currency lost 23pc value against the dollar in the first nine months of 2022 during which the banks’ windfall in terms of foreign exchange income totalled Rs89bn.

Published in Dawn, january 6th, 2023