Govt to collect additional Rs2tr from economy
Photo: file
Finance Minister Ishaq Dar unveiled a series of tax measures on Friday, including the imposition of taxes on cash withdrawal and bonus shares, as well as an amnesty scheme to whiten black money. The government aims to achieve a tax target of Rs9.2 trillion, with at least Rs223 billion in additional tax measures. Federal Board of Revenue, Chairman, Asim Ahmad insisted that the gross revenue measures amounted to Rs223 billion.
Under the amnesty scheme, individuals are offered the opportunity to declare up to $100,000 of offshore money without incurring any taxes. This amount is equivalent to Rs29 million at the current exchange rate, a significant increase from the current limit for whitening undisclosed income from undisclosed sources. However, linking the amnesty with foreign currency raises concerns about the potential for perpetual amnesty.
The Finance Bill 2023 introduces a 50% additional tax on certain income, profits, and gains of companies from 2018 onwards, although the revenue impact of this measure has not been shared by the FBR. The tax is to be imposed on income arising from economic factors resulting in unexpected gains.
The FBR’s member policy, Afaque Qureshi, revealed that Rs185 billion in gross income tax measures have been proposed, along with relief of Rs10 billion in income tax. The government has also put forth Rs22 billion in sales tax measures and Rs4 billion in federal excise duty measures.
The proposed Rs9.2 trillion tax target represents a 28% increase compared to the anticipated collection of Rs7.2 trillion in the current fiscal year, according to the FBR chairman. However, sources indicate that the FBR informed the finance minister that it cannot collect more than Rs8.6 trillion in the next fiscal year.
Officials from the Ministry of Finance believe that achieving 27% growth should not be a challenge, considering the projected nominal economic growth of 25% in the next fiscal year.
If Pakistan seeks endorsement from the International Monetary Fund (IMF), the tax target may need to be increased, currently standing at 8.7% of the GDP. However, the FBR may struggle to meet the new target due to strict import restrictions, as its performance has been heavily dependent on imports.
The FBR chairman said that the tax machinery aims to add at least one million new taxpayers in the next fiscal year to expand the tax base.
According to the Reform and Revenue Mobilisation Commission interim report, only 28,027 taxpayers paid 80%, or Rs1.274 trillion, of the income tax in tax year 2022. The report revealed that a small number of taxpayers accounted for significant portions of the income tax paid.
Revenue measures
A major proposal introduced by the government is a 0.6% income tax on daily cash withdrawals above Rs50,000 by non-filers. However, the IMF and the World Bank oppose this tax measure.
The government has also raised the income tax rate from 1% to 5% for filers conducting overseas credit card transactions. For non-filers, the rate has been set at 10%. This increase aims to curb the outflow of dollars, estimated at $1.5 billion annually.
Additionally, the government has proposed a 10% tax on bonus shares for filers and 20% for non-filers. A Rs200,000 tax has been imposed on each foreign worker employed in Pakistan.
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The government has significantly expanded the scope of the super tax, imposing a 10% rate on individuals and companies earning over Rs500 million annually. For those earning between Rs400 million and Rs500 million, an 8% rate is proposed, while those earning between Rs350 million and Rs400 million would face a 6% rate.
For commercial importers, the government has increased the rate from 5.5% to 6%.
The government plans to raise the withholding tax rates for suppliers, contractors, and service providers by 1% across the categories. The FBR chairman explained that these rates have been revised to account for increasing inflation, as they have not been adjusted since 2015.
The sales tax rates on branded textiles and leather chains have been increased from 12% to 15%. Finance Minister Ishaq Dar stated that this measure targets wealthy individuals.
Furthermore, the government has imposed a Rs2,000 tax on fans for energy conservation.
Relief measures
The government has reduced the minimum income tax rate for listed companies by 0.25%, bringing it down to 1%, in an effort to appease the stock market.
The concessionary 0.25% income tax rate for IT services has been extended for three years. Additionally, the concessionary income tax rate of 20% for banks on lending to SMEs has been extended.
The government has abolished the 2% income tax on the purchase of immovable property by overseas Pakistanis.
For young entrepreneurs up to 30 years of age starting a business, their tax liability has been reduced by 50%. Similarly, influential builders will benefit from a 10% reduction in their tax liability, up to Rs5 million, or whichever is lower.
Published in The Express Tribune, June 10th, 2023.
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