In a country struggling with revenue shortages and economic instability, Pakistan’s banking sector plays a crucial role in keeping the economy afloat. However, despite being the largest taxpayer and contributing significantly to national fiscal stability, banks often face unfair criticism. This paradox calls for a change in perspective and a more balanced view of the sector’s contribution to the economy.
In 2024, Pakistan’s banking sector, which includes commercial banks, development finance institutions (DFIs), and microfinance banks, contributed a remarkable Rs 1.6 trillion to the national revenue. This includes Rs 856 billion in corporate and income taxes, Rs 63 billion in sales and excise duties, and over Rs 685 billion in withholding taxes. To put this into perspective, this amount is nearly five times more than the contribution in 2021. Despite this significant financial support, banks face criticism, unpredictable regulations, and are taxed at the highest rates compared to other sectors.
“The banking sector contributed Rs 644 billion in taxes in 2023 alone, and in a single day facilitated Rs 30 billion in government revenue,”
said Zafar Masud, Chairman of the Pakistan Banks Association.
“Yet, we are taxed at rates nearly double that of other industries. Taxation must be based on income, not balance sheet size or political expediency.”
Today, banks in Pakistan are taxed at an effective rate of 54%, compared to the 29% tax rate that most other industries face. This disparity is not only unfair, but it also harms the broader economy. When banks, which finance businesses, infrastructure, and government operations, are heavily taxed, it creates an environment where economic growth is stifled.
Critics often argue that banks prefer government securities over lending to the private sector. However, this overlooks the real economic challenges that Pakistan faces, such as a high fiscal deficit, weak legal enforcement, and an underdeveloped capital market. In the fiscal year FY24, banks financed over 99% of the government’s budget deficit, helping keep essential government functions like defense, pensions, and social protection running smoothly. Rather than diverting resources, banks are providing critical support to the country’s fiscal needs.
“With 54 percent of the banks’ income directed to the government, it is only fair that we are treated as partners,”
said Atif Bajwa, Chairman of the Pakistan Banking Summit Steering Committee.
“Whenever the government has called upon the banking industry, we have always stepped up.”
Banks in Pakistan also play a key role in supporting small and medium enterprises (SMEs), agriculture, housing finance, and digital banking. The sector employs over 200,000 people and has made progress in improving gender diversity, in line with the State Bank’s financial inclusion mandate. It is also one of the most regulated and transparent sectors of the economy.
The real issue lies in the overall tax structure. While banks operate under strict regulations and pay high taxes, large parts of the economy remain informal and untaxed. This puts an unfair burden on sectors that are formal and transparent, like banking, while other parts of the economy are largely left unchecked.
In the end, the banking sector is not asking for praise, but rather for fair tax treatment and recognition of its vital role in Pakistan’s economy. The sector has stepped up during times of need and continues to support the country’s financial system. A fairer approach to taxation and a better understanding of the banking sector’s contributions are needed to ensure Pakistan’s long-term economic growth.