The coalition government on Friday proposed slapping Rs740 billion in additional taxes, targeting commercial banks, real estate, retailers, foreign assets of Pakistanis, commercial importers and consumers of petroleum products.
Of Rs740 billion, Rs300 billion will be generated through the single largest measure – increase in petroleum levy rate from Rs30 to Rs50 per litre –a measure that will stoke inflation in Pakistan.
The remaining Rs440 billion is proposed to be collected by amending the tax laws, income tax ordinance, sales tax act, federal excise duty act and customs act. The government has proposed a target of Rs7 trillion for the Federal Board of Revenue – up by nearly 17% or Rs1 trillion on the expected collection of this fiscal year.
“Increasing the petrol levy rate maximum limit from Rs30 per litre to Rs50 per litre does not mean that the government will start recovering the full levy from day one,” Finance Minister Miftah Ismail said. He said these rates would be gradually increased to achieve the Rs750 billion annual collection target of petroleum levy.
Where the government has imposed Rs440 billion taxes, it has also provided relief of Rs85 billion, bringing the net impact of the additional measures to Rs355 billion for the next fiscal year 2022-23.
“The salaried class will get a solace of Rs47 billion in the next fiscal year due to change in their tax rates,” Asim Ahmad, the chairman of Federal Board of Revenue, said while giving a briefing to the media persons after presentation of the budget in parliament.
The federal cabinet rejected two budget proposals - slaping 17% sales tax on CKD kits of mobile phones and increasing sales tax on textile sector outlets from 12% to 17%. The cabinet also turned down the proposal to increase tax rates on tractors and fertilisers, which may irritate the International Monetary Fund.
At least Rs316 billion worth of additional income tax measures have been proposed by the government for the next fiscal year. The FBR chairman said that the government has also given a relief of Rs49 billion in taxes, thus, the net impact of the income tax measures will be Rs267 billion.
Similarly, around Rs90 billion worth of sales tax and federal excise duty measures have been taken in the budget. The government has also provided relief of Rs30 billion under the GST and FED laws, bringing the net impact of measures to Rs60 billion.
The government has slapped Rs34 billion worth of customs duties in the budget but also gave Rs6 billion relief and the net impact of the duties will be Rs28 billion.
To a question whether Rs47 billion relief to the salaried class can adversely impact Pakistan-IMF talks for the revival of the bailout programme, the FBR chairman said that the discussions were ongoing with the IMF and the finance minister would be in a better position to explain the situation.
The IMF had demanded to increase the tax burden of the salaried class to collect around additional Rs123 billion from them. Instead, the government has enhanced the income tax annual exemption limit for the salaried class from Rs600,000 to Rs1.2 million and for business class from Rs400,000 to Rs600,000.
The maximum rate for the salaried class has been reduced from 35% to 32.5% and the numbers of slabs have been reduced from 12 to seven. For people earning from Rs1.2 million to Rs2.4 million, the government has proposed 7% rate, for up to Rs3.6 million, the new rate is 12.5%, for up to Rs6 million, the new rate is 17.5%, for up to Rs12 million annual income the rate is 22.5% and for above Rs12 million, the rate is 32.5%.
Income tax measures
A 2% Poverty Alleviation Tax has been slapped on high earnings of all those persons, including individuals and businesses, whose income is above Rs300 million.
READ Govt revises taxable income limit to Rs100,000
This single measure will generate Rs38 billion extra in the next fiscal year. The FBR had proposed charging this tax only for one year but the federal cabinet decided that the tax should continue in coming years.
The government slapped Rs53 billion additional taxes on banks by increasing their rates from 35% to 45% and on their investment in government securities. The FBR had proposed charging a 42% rate but the federal cabinet increased it to 45%.
The increase in tax rate on banks from 39% to 45% will give Rs28 billion while another Rs25 billion would be earned through adjustments in their advance to deposit ratios.
In a major move, the government proposed increasing Capital Gains Tax rates on immovable property by expanding the threshold of exemption from four years to six aimed at generating Rs40 billion extra revenues next year. If the plot is sold within one year, the CGT rate will be 15% that will reduce to 12.5% in the second year of holding, 10% in the third year, 7.5% in the fourth year, 5% in the fifth year and 2.5% in the sixth year.
In case a house is constructed and then sold, the CGT rate exemption will be available after four years and on construction of an apartment the exemption will be available after the second year.
The government has proposed 5% deemed income tax on immoveable property aimed at generating Rs30 billion revenue. Inland Revenue Policy member Afaq Qureshi said that the new tax will not be imposed in case a person has one property. The government has targeted unutilised residential, commercial, industrial plots and farm houses through the levy.
It increased the rate of advance tax on purchase of immovable property by non-filers of the income tax returns from existing 2% to 5% for Rs20 billion more revenue. Similarly, it increased the rate of advance tax on purchase and sale of immovable property by the filer persons from existing 1% to 2% for Rs45 billion additional revenues.
In yet another important move, the government imposed 1% Capital Value Tax on foreign immovable properties of Pakistani residents as well as their liquid foreign assets to fetch Rs18 billion more revenues.
The government doubled the Advance Income Tax on luxury vehicles registration of above 1,600cc category for Rs10 billion revenue. The rates have been doubled with the maximum rate increased to Rs500,000 for filers and Rs1 million for non-filers on registration of cars.
In a highly inflationary move, the government proposed increasing income tax rate at import stage on import by commercial importers of raw materials from 2% to 4% to generate Rs17 billion more in taxes.
The small- and medium-sized retailers have also been decisively targeted but through indirect means. In order to collect Rs30 billion more from them, the government has slapped fixed tax through their electricity bills.
The Rs3,000 per month tax will be charged on up to monthly electricity bill of Rs30,000, Rs 5,000 on up to electricity bill of Rs50,000 a month, Rs10,000 a month on up to electricity bill of Rs100,000, according to Qureshi.
The FBR also proposed to get powers to impose Rs50,000 per month for a special class of retailers like car dealers, sellers of precious watches as final tax liability on income and sales tax.
The government slapped 1% income tax on debit and credit cards transactions being conducted with foreign suppliers, originating from Pakistan or during foreign travel.
The government also targeted Private Funded Gratuity and Pension Schemes to collect Rs10 billion more to meet a condition by the IMF.
The government increased the excise duty rates on cigarettes to get Rs10 billion more and also increased FED on international business class tickets from Rs10,000 to Rs50,000 per ticket. FED on telecommunication services has been increased from 16% to 19.5%.
Customs
The government has reduced duties on import of dyes, packaging sector, farm machinery and flavouring powders. It has imposed 10% regulatory duty on import of petrol by replacing it with 10% customs duties, getting Rs30 billion additional in the next fiscal year.
Sales tax
The government abolished sales tax on seeds, solar panels, tractors, charitable hospitals and UN diplomats. The sales tax on import of machinery for power generation, mainly the China-Pakistan Economic Corridor power projects, has also been abolished.
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