In a significant move poised to reshape Pakistan’s financial landscape, the Federal Board of Revenue (FBR) has formally recommended the abolition of the Seventh Schedule of the Income Tax Ordinance 2001. This proposal, articulated by FBR Chairman Rashid Mahmood Langrial to the Senate Standing Committee on Finance on June 20, 2025, aims to transition banks from a specialized tax treatment to the general corporate tax regime applicable to other companies. This initiative is a critical step in the government’s broader strategy to streamline tax collection, ensure equity across economic sectors, and potentially unlock new revenue streams vital for national development in an increasingly digitized financial world.
Chairman Langrial vociferously argued that banks, as commercial entities, should not benefit from distinct tax privileges. He emphasized the principle of uniform tax treatment, asserting that financial institutions, despite their unique operational models, are fundamentally businesses and should contribute to the national exchequer on par with other corporations. The Seventh Schedule, a provision introduced in 2007, has historically granted specific concessions and calculation methods for bank taxation, which the FBR now deems anachronistic and a hindrance to a comprehensive and equitable tax system. This alignment with standard corporate tax practices could have profound implications for the banking sector’s profitability, potentially prompting a re-evaluation of their operational efficiencies, including digital transformation investments and pricing strategies for digital financial products.
During the committee’s review of the Finance Bill 2025-26, chaired by Senator Saleem Mandviwalla, the proposed amendments garnered support. Hamid Atiq Sarver, FBR Member Inland Revenue (Operations), provided the committee with detailed insights into the legal and technical ramifications of integrating banks into the normal tax framework. The Securities and Exchange Commission of Pakistan (SECP) Chairman, Akif Saeed, corroborated that banks are indeed registered as companies, reinforcing the FBR’s argument for a standardized tax approach. This convergence of views from key regulatory bodies suggests a concerted effort to recalibrate the fiscal relationship between the state and its financial sector.
The discussions also extended beyond bank taxation, touching upon broader fiscal reforms. Senator Mandviwalla, a vocal critic of the FBR’s anomaly committees, expressed concerns over their effectiveness in addressing business community grievances, signaling a push for greater transparency and responsiveness in tax administration. Furthermore, a proposal to abolish the Special Economic Zone (SEZ) Act gained traction, especially given the government’s current stance against offering new tax exemptions. This indicates a strategic shift away from sector-specific incentives towards a more generalized, compliance-driven tax policy, which could influence investment flows, including those into digital and technology-driven ventures within these zones.
Another significant recommendation supported by Mandviwalla was the FBR’s proposal to limit taxpayer audits to a three-year period. This measure aims to reduce the burden of prolonged scrutiny on taxpayers, fostering a more predictable and business-friendly tax environment. For the banking sector, operating within a transparent and standardized tax regime could foster more innovation and investment in financial technology, as clarity in fiscal policy can empower long-term strategic planning. As the Finance Bill 2025-26 progresses, the proposed changes to bank taxation will remain a focal point, indicating a decisive move towards a more equitable and modernized tax system for Pakistan’s evolving digital economy.