ISLAMABAD: The government on Tuesday slapped unprecedented Rs516 billion worth of additional taxes besides abolishing concessionary income tax regimes to generate an extra amount of over Rs350 billion in taxes.
Inflationary taxation measures have been proposed to qualify for the International Monetary Fund (IMF) programme that has asked Pakistan to achieve Rs5.550 trillion tax collection target in the fiscal year 2019-20.
The income tax exemption threshold has been halved for the salaried class to only Rs600,000 annual income and for the business people to only Rs400,000. This will massively reduce the disposable income of people amid an inflationary environment.
The government has abolished the non-filer tax regime and has proposed to arrest people who do transactions but remain outside the net by not filing their returns. It has proposed that property worth Rs5 million and above and assets worth Rs1million-plus can only be bought through banking channels.
Soft drinks, steel, cars, juices, sugar, cement, edible oil, and goods will become expensive from July.
The government has also proposed to change the definition of non-resident persons, limiting the chances of tax avoidance by restricting the stay abroad for tax purposes.
At present, if people stay abroad for 182 days in a year they are treated nonresident for tax purposes. Now, three months stay in Pakistan will make them resident Pakistanis.
The government has proposed to increase the salaried and business class income tax rates to 35%, freeze the corporate tax rate at 29%, increase the tax burden of banks up to 41.5% and withdraw all income tax concessionary regimes, including of importers and nonresident persons. The gifts given by other than relatives will also be included in the person’s income to plug a loophole for tax evasion.
But it did not put any additional burden on the stock market and also did not withdraw income tax exemptions being availed by heads of armed forces and the executive-judiciary.
It imposed an additional customs duty of up to 7% on 2,400 tariff lines, slapped up to 7.5% federal excise duty on cars, increased sales tax rates on food items, slapped 17% tax on local sales of five export-oriented sectors and increased federal excise duty rates on cement.
The steel and sugar will become expensive due to the imposition of 17% sales tax.
The government has proposed to abolish final tax regime for importers, bringing them in the normal tax regime, the profit on the debt will be subject to 35% rate, payments to nonresident persons, the income of a resident person, payments to royalty will be charged at normal tax rates. It has proposed a Business License Scheme for all persons doing business in Pakistan, including small shopowners and vendors.
The government has enhanced penalties for offshore tax evaders and under-declaration of value of assets. It has proposed up to seven-year imprisonment for people concealing offshore assets or helping a person to conceal offshore assets.
“The federal government has proposed Rs516 billion additional revenues for the fiscal year 2019-20,” said Federal Board of Revenue (FBR) Member Inland Revenue Policy Dr Hamid Atiq Sarwar, while giving a briefing on taxation measures to media persons.
“The government has taken additional Rs36 billion custom duty measures. It has slapped Rs200 billion worth new sales tax and taken Rs70 billion worth federal excise duty measures. The new income tax measures stand at Rs200 billion,” he said.
Sarwar said the revenue impact of freezing corporate tax rates and abolishing final tax regimes for almost every business was not included in the Rs516 billion new tax measures.
After including the impact of all administrative measures, the FBR is expected to gain another Rs350 billion – a figure that the IMF will critically review.
The most regressive measure was the FBR’s decision to increase additional custom duty on 2,400 tariff lines by up to 5% that would increase the cost of every imported semi-finished and finished goods.
The FBR Member Customs Javed Ghani said the government will fetch minimum Rs30 billion through additional custom duty rates. The effective rate of 16% customs duty slab will now be 20% and of 20% highest slab’s effective rate will be 27%.
The government has also increased the tax rates on cement by Rs0.5 to Rs2 per kg that will increase the cost of 50 kg cement bag by another Rs25. The government has proposed Rs5.550 trillion tax collection target for the FBR. This will be Rs1.4 trillion or 33.7% higher than the outgoing fiscal year’s downward revised target of Rs4.150 trillion.
The tax burden of the salaried class has been massively increased by lowering the income tax exemption threshold to Rs600,000 and increasing the maximum income tax rate from 29% to 35% by adding four new tax slabs.
People earning more than Rs600,000 to Rs1.2 million annually will be subject to a 5% income tax. For Rs1.2 million to Rs1.8 million the new tax rate is 10%, for Rs1.8 million to Rs2.5 million the new rate is 15%, for Rs2.5 million to Rs3.5 million the new rate is 17.5% and for Rs3.5 million to Rs5 million the rate is 20%.
For people earning from Rs5 million to Rs8 million, the income tax rate is 22.5%. The maximum rate of 35% will apply to over Rs75 million annual income. The FBR will get additional Rs50 billion from the salaried class.
The dividend income tax rate has been increased to 25%. The property valuation rates have been increased to 80% of the market value but their withholding tax rates have been reduced. On the interest income, the FBR has slapped a 35% tax.
The FBR has proposed to reduce the immunity available on foreign remittances from Rs10 million to Rs5 million. Now the FBR will have the authority to ask a question about the source of remittances if its value above Rs5 million annually.
The government has increased the income tax on a middleman who sells farm produce from Rs10,000 to Rs100,000 per annum. The government has proposed that gifts given by nonrelatives will be treated as the recipient’s income and will be subject to normal 35% income tax rate. It has increased the minimum income tax rate from 1.25% to 1.5%.
The income tax concessions to industrialists have been withdrawn from next fiscal year, which was available on the modernization of machinery. The non-filer income tax regime has been abolished. These people would pay 100% of the normal withholding tax rate and will be subject to criminal proceedings.
The rental income tax rates have been proposed to increase to 35% for over Rs8 million income from the property. The minimum tax on services has been increased from 2% to 4%, and the government has imposed a 15% withholding tax on royalty income.
The government has proposed up to Rs12,500 monthly sales tax on brick kilns, which would increase the construction cost. It has declared restaurants as ‘a good’ as against the provinces’ claim that these are services, which can raise the constitutional issue for the Centre. Restaurants will be subject to 7.5% sales tax. All imported goods will also be subject to 3% ad valorem sales tax.
The sales tax on account of minimum value addition as payable under this schedule shall be levied and collected at import stage on all taxable goods as are chargeable to tax under section 3 of the act or any notification issued thereunder at the rate specified in the table in addition to the tax chargeable under section 3 of the act or a notification issued thereunder.
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But raw materials and intermediary goods meant for use in an industrial process which are subject to customs duty at 16% or 20% ad valorem under the First Schedule to the Customs Act, 1969 and the petroleum products imported by a licensed oil marketing company will be exempted from 3% tax.
The government has slapped 15% sales tax on retailers making supplies of finished goods of textile and leather sectors and 17% at the manufacturing stage on the five export-oriented sectors that will fetch Rs90 billion revenue. 5% of sales tax has been imposed on cotton oil seed, 10% on ghee and cooking oil.
The government has introduced a new definition of the cottage industry that will address the concerns of the small-scaled industries. It has restricted the tier-one retailer's tax rates to only those whose annual turnover is Rs5 million.
The government has disallowed the tax credits to those businesses whose invoices do not bear the CNIC of the buyer claiming input tax paid. The government has also proposed to keep sales tax audit selection parameter confidential, like in case of income tax.
The government has included more items in the list that are subject to the standard 17% sales tax. It has decided to slap 17% sales tax on all household electrical goods, including air conditioners, refrigerators, deep freezers, televisions, recorders and players, electric bulbs, tube-lights, fans, electric irons, washing machines and telephone sets, household gas appliances, including cooking range, ovens, geysers and gas heaters, foam or spring mattresses and other foam products for household use.
This sales tax also applied to arms and ammunition, paints, distempers, enamels, pigments, colours, varnishes, gums, resins, dyes, glazes, thinners, blacks, cellulose lacquers and polishes sold in retail packing, lubricating oils, brake fluids, transmission fluid, and other vehicular fluids and maintenance products, storage batteries excluding those sold to automotive OEMs.
It has also imposed 17% sales tax on all sales of meat, fish, and poultry being sold by brands. The sales tax has also been imposed on silver and gold of up to 2% of the value addition or 1% of the import value. The frozen and preserved sausages will be subject to a 10% sales tax.
Fat milk will also be charged 10% sales tax. The sales tax rate on potassium chlorate has been increased from 17% plus Rs65 per Kg to Rs70 per kg. The steel sector will be subject to 17% sales tax, sales tax on sugar has been increased to 17%. The tier-1 retailers will pay 17% sales tax.
It has imposed 2.5% federal excise duty on 1,000 cars and motorcycles, 5% on up 1,999 cc vehicles and 7.5% on over 2,000 cc vehicles. The tax-free import facility on one mobile phone has also been withdrawn. It has also imposed 5% federal excise duty on juices, and 13% on carbonated and soft drinks.
The third-tier reduced federal excise duty rates on cigarettes have been withdrawn while the rates on the remaining two categories of cigarette brands have been increased. Javed Ghani said the government has also reduced custom duties on 1,650 tariff lines that were subject to 3% duties.