(Bloomberg) -- About a dozen banks in Pakistan have secured a temporary relief from the court against a government tax on the lenders if their borrowing to the private sector was lower than the target.
In separate cases, the Islamabad High Court barred the government to collect tax based on advance-to-deposit ratio of banks until it gives a final verdict on the petitions by different lenders, Muneer Kamal, Chief Executive Officer at the Karachi-based body representing the nation’s banks, said by phone. Bank shares were the biggest gainers on the benchmark KSE-100 Index on Friday.
“Till the next date of hearing no coercive action will be taken against the petitioner on the basis of any calculation made by the tax department,” according to a court order dated November 13 on an application by Meezan Bank Ltd. available on the court’s website.
The measure comes as the South Asian nation wants to boost its revenue as part of the $7 billion loan program with the International Monetary Fund. The authorities had imposed the tax on banks if the loans to the private sector did not exceed 50% of their deposits but its seen as an attempt to ramp up taxes.
The court will hear the case from December 3 and it is not known when the final order will be given.
The banking sector is already highly taxed as its contribution to national taxes has increased almost four times to 618 billion rupees in 2023 compared with two years ago, Kamal said. The banks argue that the government can’t impose a tax and they are supervised by the central bank.
MCB Bank Ltd., Askari Bank Ltd., the Pakistani unit of Citigroup Inc, Standard Chartered Bank Pakistan Ltd. and Habib Metropolitan Bank Ltd. are among other lenders to get the same relief in separate orders, he said said and added most of the other banks are expected to file a similar suit.
Shares of United Bank Ltd. gained as much as 5.5% to a record, Meezan rose 2.9%, the most in about six weeks and MCB rose 1.8%. The three banks were the leading gainers on the KSE-100 Index.
Banks have been aggressively lending to the private sector after the industry’s average advance-to-deposit ratio stood at 42% in June. Only three listed banks met the 50% benchmark by June, according to a report by brokerage Arif Habib Ltd. last month.
The government initially imposed the incremental tax in 2022 but were granted a one-year exemption in 2023 that has ended. “Meeting the target will be more challenging this year, as banks remain heavily invested in government securities,” Sana Tawfik and Muhammad Abrar wrote in the report.
(Updates with share movement and details throughout)
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