Introduction
Pakistan’s financial sector has demonstrated resilience and strong fiscal contribution, with the sales tax on banking and financial services registering an impressive 17% growth in Fiscal Year 2023 (FY23). This increase, reported by provincial revenue authorities such as Sindh Revenue Board (SRB) and Punjab Revenue Authority (PRA), signals both expanding financial activity and enhanced tax compliance within the sector.
Key Growth Indicators
The 17% rise in banking services sales tax collection can be attributed to several factors:
-
Increased volume of digital and retail banking transactions
-
Wider coverage of taxable services including ATM services, fund transfers, and trade finance
-
Improved monitoring and enforcement by provincial tax authorities
-
Recovery from pandemic-induced slowdowns in the financial and business services sector
According to SRB and PRA reports, collections from banks, NBFCs, microfinance institutions, and forex dealers contributed a significant share of total provincial sales tax revenue.
Breakdown of Tax Growth by Region
| Province | Authority | Growth in FY23 | Key Contributors |
|---|---|---|---|
| Sindh | SRB | +18% | Large commercial banks, fintechs, ATM networks |
| Punjab | PRA | +15% | Islamic banking, digital payments, remittances |
| Khyber Pakhtunkhwa | KPRA | +13% | Branchless banking, rural microfinance |
The Sindh Revenue Board led with the highest increase, driven by enhanced reporting and real-time data access from financial institutions.
Applicable Tax Rates and Legal Framework
Banking and financial services are taxed under provincial sales tax laws. While each province sets its own rate, the general structure is as follows:
-
Sindh Sales Tax on Services Act, 2011: 13% on banking services
-
Punjab Sales Tax on Services Act, 2012: 16%
-
Khyber Pakhtunkhwa Finance Act, 2013: 15%
-
Balochistan Sales Tax on Services Act, 2015: 15%
Services subject to tax include:
-
ATM and debit/credit card charges
-
Loan processing and arrangement fees
-
Locker and account maintenance charges
-
Interbank fund transfers
-
Forex trading, remittances, and guarantees
Implications for Banks and Financial Institutions
The rise in sales tax revenue implies increased scrutiny and compliance pressure on banks and financial intermediaries. Financial institutions must:
✅ Maintain accurate service-wise records
✅ File timely monthly sales tax returns on provincial portals
✅ Reconcile tax withheld, input tax adjustments, and turnover reports
✅ Ensure registration and compliance across multiple jurisdictions where operations span various provinces
Tax Challenges Faced by the Banking Sector
| Issue | Impact |
|---|---|
| Jurisdictional overlaps | Confusion in inter-provincial service taxation |
| Complex classification of services | Misinterpretation in rate application |
| High compliance burden | Requires dedicated tax management resources |
| Frequent audits | Increased risk of notices, penalties, and litigation |
Banks and NBFCs have repeatedly called for harmonization of service tax laws and clarity on input adjustments related to capital expenditures and technology upgrades.
Policy Outlook and Future Trends
-
Digital banking expansion is expected to further widen the tax base
-
Inter-agency data integration between FBR and provincial authorities may lead to better enforcement
-
Calls for reduced rates or input tax clarity are under review to encourage financial inclusion and fintech growth
-
Introduction of e-invoicing mechanisms for banking services is being considered by SRB and PRA
Conclusion
The 17% growth in sales tax collection from banking services in FY2023 reflects a positive trend in financial transparency and sectoral contribution to public revenue. As Pakistan moves towards a more digitized and documented economy, tax compliance by financial service providers will remain under sharp focus.
For banks and NBFCs, the key to navigating this evolving landscape lies in systematic tax planning, automated reporting, and regulatory engagement to ensure both compliance and operational efficiency.
Need help with banking sales tax compliance across multiple provinces?
At Sterling Consultancy, we offer specialized services in sales tax registration, monthly return filing, input reconciliation, and audit defense for financial institutions.
