Last Updated on: 6th October 2023, 01:20 am
List Of All Tax Measures Planned in The Next Budget
The next federal budget for the fiscal year 2023-24 (FY24) is expected to include a number of fiscal measures aimed at meeting the tax revenue target.
Analysts at Topline Securities have compiled a set of tax recommendations that may be considered and incorporated into the 2023 financial proposal.
The government will focus on achieving natural fiscal growth in line with nominal GDP growth, while also implementing other policies in various sectors.
Tax On Undistributed Reserves
A new input tax of 5% and 7.5% respectively is expected to be charged for listed and unlisted companies.
This tax can be checked when paying dividends. The government has not yet decided whether this tax will apply retrospectively, targeting companies that have not lost profits in previous years, or whether it will only apply to companies that have not lost profits recently or in the coming year to plan.
It is estimated that companies listed on the Pakistan Stock Exchange (PSX) have reserves of around Rs 6.4 trillion, which could bring in around Rs 300-350 billion to the Federal Board of Revenue (FBR).
In addition, reports suggest that the reserves of listed companies have totaled Rs. 2.8 trillion over the past three years, which could generate Rs. 140,000 million in tax revenue for the government. However, it is important to note that this reserve tax can have legal implications as the use of reserves for growth or distribution purposes is at the discretion of shareholders and sponsors.
Super Tariff Maintenance
The government is expected to continue to impose the super tax on businesses based on the model introduced in the FY23 budget. Previously, a 10% super tax was levied on 15 target sectors whose revenues exceeded 22 rupees, and a super tax in increments of 1% to 4% for sectors outside the specified sectors with incomes of 150 to 300 crore or more.
The transition from the Final Tax Regime (RTC) to the Minimum Tax Regime (RTM) for exporters
The tax regime of non-taxed sectors and concession beneficiaries may change, forcing exporters to pay taxes on their taxable income instead of the current taxation of products withdrawn from banks. The purpose of this change is to encourage documentation in the export sector.
Asset Tax/Wealth Tax
The Revenue Mobilization Commission (RMC) has proposed levying a Minimum Asset Tax (MAT) on the value of the real estate and personal property of residents in Pakistan more than Rs 100 million.
The MAT assumes a 5% annual return on the taxpayer’s wealth, assuming an income tax rate of 20%. In addition, the government is considering levying a wealth tax, known as an income support tax, on all assets, including agriculture, at rates ranging from 0.25% to 2%.
Depending on the tax rate and the asset class to be taxed, the government estimates additional annual tax revenues of Rs. 25-200 billion.
Higher Tax For Non-Declarants
The government is considering the possibility of levying higher taxes on non-applicants, particularly on real estate purchase and sale transactions. This measure aims to encourage documentation, such as the tax increase introduced by the PML-N government in 2014.
18% VAT
The government plans to keep the standard general sales tax (GST) rate at 18%, which was raised from 17% in the previous mini-budget. Instead of lowering the GST rate, the government intends to focus on increasing the withholding tax if necessary.
Agricultural Income Tax
There are repeated calls from various sectors of the economy to levy higher taxes on agricultural income, which contributes 20% to GDP. However, it is important to note that provincial governments have the power to levy taxes on this income.
So far, provinces have been reluctant to change tax rates, and tax revenue from the agricultural sector is currently only 3,000 crore rupees.
Appreciation Of Real Estate
From July 1, 2023, property valuations are expected to increase. The Federal Revenue Board (FBR), in consultation with the provincial authorities, has already begun updating the rating tables. This decision is in line with tax reforms implemented by the RBF under the Pakistan Raises Revenue Project (PRRP) in cooperation with the World Bank. Higher real estate valuations lead to higher tax revenues.
Tax On Allocated Rental Income
The Resource Mobilization and Reform Commission (RRMC) has recommended a 1% tax on estimated rental income for properties held by non-declarants. Given tax constraints, such taxes on non-declarants cannot be ruled out.
Bank Tax
The continuation of the super tax and the possible introduction of new taxes on the banking sector are possibilities that cannot be ruled out. The profitability of the banking sector has increased significantly due to the rise in interest rates.
In the calendar year 2022, listed banks’ tax spending increased to Rs.336 billion, an increase of 80%.
Tobacco Tax
The tobacco industry continues to be an important source of tax revenue for the state. However, the recent Federal Excise Tax (FED) hike on mini-household cigarettes in February 2023 has led to a drop in sales of legally sold cigarettes. This decline has been accompanied by an increase in the power of the illicit cigarette market, which offers cheaper alternatives.
As a result, government revenue targets in the tobacco sector may not be met.
Therefore, new taxes are unlikely to be imposed on the tobacco sector. In FY2022, the federal government has collected Rs.150,000 crore in taxes and the target for FY2023 has been set at Rs.200,000 crore, but there is a risk that this target will be missed due to falling formal sector sales after the price hike.
Dollar Amnesty
To close the external funding gap by fiscal year 24, the government might consider granting an amnesty to declare and pay dollars into the budget or shortly thereafter.
Beverage Tax
Civil society representatives and health experts have proposed increasing the excise duty on sugary beverages (SSB) to 50% in the draft budget for fiscal year 2024.
However, beverage industry officials and their supporters are pushing for a tax cut on sugary drinks from 20% to 16%. The current tax rate of 20% of the retail price must be maintained, which was increased by 13% in the February 2023 mini-budget.
Scholarship Awards
The Government had provided grants worth Rs. 664,000 crores for the financial year 23 and so far Rs. 524,000 crore has been disbursed. Grants are expected to be cut in FY24.
Promotion of cashless payment transactions at petrol pumps
Measures can be taken to prevent cash transactions at gas stations, encourage non-cash transactions and encourage documentation.
The increased tax rate for commercial importers
The tax rate for commercial imports is to be increased from 5.5% to 8% and for commercial importers from 3.5% to 5.5% in the 2023-2024 financial year. This increase is intended to generate more revenue from commercial imports.
The fixed tax regime for retail traders
The Institute of Chartered Accountants of Pakistan (ICAP) has proposed a flat tax scheme for small retailers. ICAP suggests categorizing small retailers based on their location and region. The Federal Board of Revenue (FBR) has already initiated efforts to onboard Tier 1 retailers.
In order to implement this tax collection, the involvement of provincial and development authorities and the introduction of a simplified tax return form can be considered. However, implementing these taxes can present some challenges.
Also Read: Federal Govt Will Reintroduce The Withholding Tax On Cash Withdrawals
Denial of Supported Taxes
Manufacturers, commercial importers, wholesalers, distributors, and resellers must provide complete buyer information on their sales tax returns and withholding tax returns. Otherwise, the proportionate income tax and input tax will be denied. The aim of this measure is to improve transparency and prevent tax evasion.
Increase in tax rates for sole traders and associations of persons
The Revenue Mobilization and Reform Commission recommends a 10 percent increase in tax rates for unincorporated businesses, such as sole proprietors and AOPs, to encourage business formation. The aim of this decision is to encourage companies to register as companies and to encourage formalization.
Real estate capital gains restructuring
Proposed changes include taxing short-term gains as ordinary income, introducing a 20% tax on long-term gains with cost indexation, and introducing accrued rental income and accrued ground rent.
In addition, the withholding would apply to rights to purchase real estate. These changes aim to reform the taxation of capital gains from real estate transactions.
The current exemption on gains from real estate or shares sold to a real estate investment trust (REIT) can be extended until June 30, 2026. This extension is intended to continue to create tax incentives for investments in REITs.
Import Duties
The government recently introduced measures to ban the import of luxury goods to curb the outflow of foreign exchange reserves. With growing concerns about the balance of payments, it’s likely that additional measures, such as increased regulation and tariffs on certain imported items, will be put in place to address the issue.
Support package within the framework of the BISP
In the FY23 budget, Rs.360,000 crore was allocated to BISP, and in the next budget a similar or greater amount could be allocated to assist those in need.
It is important to note that these points are based on the information provided and are subject to change by the time the official budget is released.
Also Read: What Are The Tax Changes Expected in FY23 Budget?