Islamabad December 6 2024: Pakistan is exploring alternative fiscal mechanisms to tax banks’ profits from investments in government securities as the Advances to Deposit Ratio (ADR) approaches 50%.
The Prime Minister has established a committee to address the issue of ADR.
The committee, chaired by the Deputy Prime Minister, includes the Minister for Finance and Revenue, the Law Minister, the Minister of State for Finance and Revenue, the Attorney General of Pakistan, the Finance Secretary, the Chairman of the Federal Board of Revenue (FBR), the Governor of the State Bank of Pakistan, and Ms. Asma Hamid.
The committee’s Terms of Reference (ToRs) include:
• Reviewing the existing legal framework for fiscal measures related to the ADR of the banking sector.
• Evaluating alternative fiscal schemes for taxing bank profits from investments in government securities.
• Engaging with the banking sector to develop a consensus on the way forward.
The committee will finalize its recommendations by December 31, 2024, focusing on ensuring government revenue generation while proposing non-fiscal regulatory measures to boost private sector lending. It will submit its report within one week and may suggest necessary legal and regulatory amendments for implementation.
According to the State Bank of Pakistan’s weekly data, the banking sector’s gross ADR ratio has steadily increased, reaching 47 percent as of November 15, 2024, compared to 39 percent on September 27, 2024. Since September 2024, gross advances have risen by 19% to PKR 14.4 trillion, while deposits have remained unchanged at PKR 30.7 trillion.
In the budget, the government introduced an incremental tax on banks for their investments in government securities if they fail to lend sufficiently to the private sector.
