The government kept all the levies it had levied in a mini-budget presented in the middle of February but proposed new revenue initiatives of Rs223 billion in the most recent budget. By increasing the general sales tax from 17% to 18%, imposing a 25% sales tax on imported luxury goods, and raising taxes on cigarettes and alcohol, the government would be able to bring in an additional Rs500bn in revenue for the fiscal year 2023–2024. These revenue-generating measures were also announced in the supplementary budget. Tax officials expect that the IMF won’t protest because all of its worries have been resolved when the government shares tax information with the Fund.
According to the suggested proposal, the government intends to distribute Rs23 billion to businesses and individuals as part of the revenue relief changes included in the Finance Bill 2023. These have received Rs. 13 billion in customs duties and Rs. 10 billion in income taxes. Regarding sales tax and excise duty, no alleviation has been mentioned. The income tax measures will bring in Rs185 billion, followed by Rs22 billion from sales tax, Rs4 billion from excise duty, and Rs12 billion from customs duty. After taking into account remedial measures, the net revenue effect will be Rs 200 billion.
Based on estimated GDP growth of 3.5 percent, average inflation of 21 percent, and revenue measures, the government intends to meet its target for increased revenue of 28 percent for the upcoming fiscal year. According to official documents, the autonomous rise in revenue (which will result from GDP and inflation) is anticipated to reach Rs1,764 billion in the fiscal year 2023–24. To accomplish the goal of Rs1.98 trillion, the total impact of all these initiatives will be Rs879 billion. The IT industry receives significant tax breaks related to exports, solarization, agriculture, and real estate.
The Finance Bill proposes maintaining the super tax and making it equitable for all individuals earning over Rs. 150 million. Three new income tiers will exist: Rs350 million to Rs400 million, Rs400 million to Rs500 million, and beyond Rs500 million. Tax rates will be 6 percent, 8 percent, and 10 percent, respectively.
Citizens who are not on the Active Taxpayers’ List (ATL) will once more be subject to a 0.6 percent withholding tax when making cash withdrawals over Rs50,000. The withholding tax rates on supplies of products (apart from rice, cotton seed, and edible oils), services (except from advertising in electronic and print media), and contracts (aside from athletes) would all rise by one percent.
For business importers of certain commodities, the withholding tax rate will rise by 50 basis points to 6 percent. On bonus shares issued by a corporation, a final withholding tax of 10% will be applied, or 20% for tax non-filers. For payments made to non-residents using debit, credit, or prepaid cards, the withholding tax rate will rise from 1 percent to 5 percent for filers and from 2 percent to 10 percent for non-filers. When a work permit or visa is issued for a foreign domestic assistant, an adjustable advance tax of Rs200,000 will be assessed.
Due to exceptional profits from outside sources, a person or group may be subject to an additional tax of up to 50% on their income. For the fiscal years 2024–2025, the Finance Bill proposes maintaining the 0.25 percent fixed rate on exports of IT and IT-enabled services (ITeS). IT export sales tax return filing will no longer be required. Income from further advances to the IT and ITeS sector received by banking companies will be subject to a 20 percent tax rate. For manufacturers, the threshold for business turnover will raise from Rs250 million to Rs800 million in order to qualify for the small and medium enterprise (SME) tax system. The SME definition will encompass IT and ITeS.
The overseas remittance cap would rise from Rs. 5 million to Rs. 100,000. If purchased with overseas remittances, a 2 percent final withholding tax on immovable property acquisitions by non-resident holders of a Pakistan-origin card (POC) or National Identity Card for Overseas Pakistanis (Nicop) will be eliminated. Young entrepreneurs (under 30) will have their tax obligations reduced by 50% for three years. The banking companies’ 20 percent tax rate on new advances made to low-cost housing, agriculture, and SMEs (including IT and ITeS) will be maintained for another two years.
Excise duty and sales tax
Sales tax on edible goods sold in large quantities under brand names or trademarks has been eliminated by the government. On supply made by point-of-sale (POS) retailers selling leather and textile goods, sales tax has gone hiked from 12 to 15 percent. Energy-inefficient fans are subject to a federal excise charge (FED) of Rs 2,000 per fan and 20 percent ad valorem on incandescent lights. Royalties and fees for technical services have been added to the FED on services’ increased scope.
Contraceptives and their accessories, plant saplings, combine harvesters, dryers for agricultural products, no-till-direct seeders, planters, trans-planters, other planters, bovine sperm, and the import of IT equipment by IT and ITeS exporters registered with the Pakistan Software Export Board are all exempt from paying sales tax for one more year, ending in June 2024. There will be a 15% levy on electric power transmission services in the federal capital. On consultants for the creation of IT-based systems, the rate was lowered from 16 percent to 15 percent. If payment is done with debit or credit cards, mobile wallets, or QR scanning, a lower rate of 5 percent is suggested for services offered by restaurants and other food outlets.
In order to boost different industries, the government has issued a number of relief measures. The import of machinery, equipment, and inputs for the production of solar panels, inverters, batteries, and related equipment is one of them. Three additional medications have also been added to the duty-free list. Additionally, the government has approved the duty-free importation of IT-related goods totaling 1% of their export earnings. On the import of intermediary/industrial inputs falling under 10 Pakistan Customs Tariff (PCT) codes, customs and additional customs taxes have been decreased.