ISLAMABAD: The Islamabad High Court (IHC) has issued an interim order restraining the government from collecting taxes on the income of banks. The court also served notices to the Secretary of Finance and other relevant respondents, directing them to submit a report and detailed responses within two weeks.

The court clarified that until the next hearing, no coercive measures would be taken against the petitioners based on any tax calculations made under Rule 6C (6A) of the 7th Schedule of the Income Tax Ordinance, 2001.

Justice Babar Sattar, presiding over a single-judge bench, heard the petitions filed by multiple banks, represented by Advocate Salman Akram Raja. The court also issued a notice to the Attorney General for Pakistan (AGP).

The petitioners have challenged Rule 6C (6A) of the 7th Schedule of the Income Tax Ordinance, arguing that it oversteps constitutional boundaries. The petitioners’ counsel stated that the Federal Board of Revenue (FBR) is taxing income earned by banks from investments in federal government securities using a formula based on gross advances to deposit ratio.

The counsel argued that this regulation encroaches on the banking sector’s operational domain, exceeding the scope of a money bill and violating Article 73 of the Constitution. Additionally, the counsel highlighted that the tax imposed is retrospective in nature, targeting investments that did not mature within the financial year, which he contended is unlawful.

The court’s decision temporarily shields banks from tax enforcement while the matter awaits further legal deliberation.