According to budget documents, criteria for the resident person for the purpose of taxation are being modified.
The current regime is being misused by wealthy individuals whereby they are not tax residents of any country therefore it is proposed that any citizen of Pakistan who is not a tax resident of any other country shall be treated as a tax resident of Pakistan.
The federal government has implemented capital gains tax (CGT) ranging up to 15 percent on the disposal of immovable properties within one year of purchase.
ISLAMABAD: A tax rate at 20 per cent has been imposed on deemed income from immovable properties through a new section introduced to Income Tax Ordinance, 2001.
The government announced federal budget 2022/2023 on June 10, 2022 and introduced new tax on a person having more than one immovable property.
A person having more than one immovable property which values above Rs25 million shall be treated as five per cent of rental income of fair market value.
Through the Finance Bill, 2022 a new Section 7E has been introduced to Income Tax Ordinance, 2001 for the purpose.
Following is the tax of the proposed Section through the Finance Bill, 2022:
“7E. Tax on deemed income.– (1) Notwithstanding anything contained in the Ordinance, for tax year 2022 and onwards, a tax shall be imposed at the rates specified in Division VIIIC of Part-I of the First Schedule, on the income specified in this section.
(2) A resident person shall be treated to have received rent equal to five percent of the fair market value of an immoveable property situated in Pakistan whether such property has actually been rented out for any consideration or not.
(3) This section shall not apply to –
(a) one self-owned immovable property;
(b) self-owned business premises from which business is carried out;
(c) self-owned agriculture land where agriculture activity is carried out by person but does not include farmhouse and land annexed thereto;
(d) where the fair market value of the property or properties, in aggregate, excluding properties mentioned in clauses (a), (b) and (c) does not exceed twenty five million Rupees;
(e) a Provincial Government, a Local Government, a local authority or a development authority;
(f) land development and construction projects of builders and developers registered with Directorate General of Designated Non-Financial Businesses and Professions of Board;
(g) a property which is subject to tax under section 15 of the Ordinance and the tax chargeable is more than tax chargeable under this section:
Provided that if tax chargeable under section 15 is less than the tax chargeable under this section so much of the amount of tax which is in excess of tax chargeable under section 15 shall be paid under this section
(4) The Federal Government may include or exclude any person or property for the purpose of this section.”
According to the Finance Bill, 2022 the rate of tax under section 7E shall be 20 per cent.
ISLAMABAD: Pakistan has amended tax laws related to digital transfers of money to non-residents for various financial services.
The country on June 10, 2022 presented its federal budget for the fiscal year 2022/2023. The amendment has been brought into the Income Tax Ordinance, 2001 through Finance Bill, 2022.
A number of amendments have been proposed to Section 6 of the Income Tax Ordinance, 2001:
Following the Section 6 of the ordinance with proposed amendments in (Bold):
6. Tax on certain payments to non-residents.— (1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division IV of Part I of the First Schedule, on every non-resident person who receives any Pakistan source royalty, fee for offshore digital fee for money transfer operations, card network services, payment gateway services, interbank financial telecommunication services or fee for technical services.
(2) The tax imposed under sub-section (1) on a non-resident person shall be computed by applying the relevant rate of tax to the gross amounts of receipts mentioned in sub-section (1).
(a) any royalty where the property or right giving rise to the royalty is effectively connected with a permanent establishment in Pakistan of the non-resident person;
(b) any fee where the services giving rise to the fee are rendered through a permanent establishment in Pakistan of the nonresident person; or
(c) any royalty or fee for technical services that is exempt from tax under this Ordinance.
(4) Any Pakistani-source royalty, or fee received by a non-resident person to which this section does not apply by virtue of clause (a) or (b) of sub-section (3) shall be treated as income from business attributable to the permanent establishment in Pakistan of the person.
Following is the existing text of Section 6 of Income Tax Ordinance, 2001:
6. Tax on certain payments to non-residents.— (1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division IV of Part I of the First Schedule, on every non-resident person who receives any Pakistan source royalty, fee for offshore digital services or fee for technical services.
(2) The tax imposed under sub-section (1) on a non-resident person shall be computed by applying the relevant rate of tax to the gross amount of the royalty, fee for offshore digital services] or fee for technical services.
(3) This section shall not apply to —
(a) any royalty where the property or right giving rise to the royalty is effectively connected with a permanent establishment in Pakistan of the non-resident person;
(b) any fee for technical services or fee for offshore digital services where the services giving rise to the fee are rendered through a permanent establishment in Pakistan of the nonresident person; or
(c) any royalty or fee for technical services that is exempt from tax under this Ordinance.
(4) Any Pakistani-source royalty, fee for offshore digital services or fee for technical services received by a non-resident person to which this section does not apply by virtue of clause (a) or (b) of sub-section (3) shall be treated as income from business attributable to the permanent establishment in Pakistan of the person.
Finance Bill, 2022 has proposed insertion of a new Section 4C to Income Tax Ordinance, 2001 for the purpose:
“4C. Tax on high earning persons for poverty alleviation.― (1) A tax shall be imposed for poverty alleviation for tax year 2022 and onwards at the rates specified in Division IIB of Part I of the First Schedule, on income of every person.
(2) For the purposes of this section, “income” shall be the sum of the following:—
(i) profit on debt, dividend, capital gains, brokerage and commission;
(ii) taxable income (other than brought forward depreciation and brought forward business losses) under section 9 of the Ordinance, if not included in clause (i);
(iii) imputable income as defined in clause (28A) of section 2 excluding amounts specified in clause (i); and
(iv) income computed, other than brought forward depreciation, brought forward amortization and brought forward business losses under Fourth, Fifth and Seventh Schedules.
(3) The tax payable under sub-section (1) shall be paid, collected and deposited on the date and in the manner as specified in sub-section (1) of section 137 and all provisions of Chapter X of the Ordinance shall apply.
(4) Where the tax is not paid by a person liable to pay it, the Commissioner shall by an order in writing, determine the tax payable, and shall serve upon the person, a notice of demand specifying the tax payable and within the time specified under section 137 of the Ordinance.
(5) Where the tax is not paid by a person liable to pay it, the Commissioner shall recover the tax payable under sub-section (1) and the provisions of Part IV, X, XI and XII of Chapter X and Part I of Chapter XI of the Ordinance shall, so far as may be, apply to the collection of tax as these apply to the collection of tax under the Ordinance.
(a) ultimately owns or controls a Company or association of persons, whether directly or indirectly, through at least ten percent shares or voting rights; or
(b) exercise ultimate effective control, through direct or indirect means, over the company or association of persons including control over the finances or decisions or other affairs of the company or association of persons;”
Another amendment has also been introduced in the Section 2 of the Ordinance to define distributor. According to:
“(18A) “distributor” means a person appointed by a manufacturer, importer or any other person for a specified area to purchase goods from him for further supply;”
ISLAMABAD: Pakistan has reduced the number of tax slabs for salaried persons through Finance Bill 2022 in the budget 2022/2023.
According to the Finance Bill, 2022 the government announced the reduction of salary tax slabs as well as incentive in tax payment for persons falling in the income range of Rs600,000 to Rs1.2 million.
Pakistan on June 10, 2022 presented its federal budget for the fiscal year 2022/2023. The budget carried several relief and taxation measures.
Finance Minister Miftah Ismail during his budget speech announced that the basic exemption for salaried persons has been increased to Rs1.2 million from Rs600,000.
As per income tax laws, the exempt income is not required to file income tax return and declaration of assets.
However, the Finance Bill, 2022 has clearly mentioned that the basic exemption from income tax for salaried persons is remained Rs600,000. However, persons falling in the income range of Rs600,000 and Rs1.2 million are required to pay a token amount of Rs100 as income tax on annual basis.
Therefore, it will be mandatory for persons falling under this income range to file income tax returns and declaration of assets. Besides, they will also be selected for audit.
Apart from this important amendment, the Finance Bill, 2022 also proposed to reduce the salary income slabs for the purpose of tax collection.
Following are proposed and existing income slabs and tax rates:
Salary income slabs and tax rates proposed through Finance Bill, 2022:
S#
Taxable Income
Rate of Tax
(1)
(2)
(3)
1.
Where taxable income does not exceed Rs. 600,000
0
2.
Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 1,200,000
Rs. 100
3.
Where taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 2,400,000
7% of the amount exceeding Rs. 1,200,000
4.
Where taxable income exceeds Rs. 2,400,000 but does not exceed Rs. 3,600,000
Rs. 84,000 + 12.5% of the amount exceeding Rs. 2,400,000
5.
Where taxable income exceeds Rs. 3,600,000 but does not exceed Rs. 6,000,000
Rs. 234,000 + 17.5% of the amount exceeding Rs. 3,600,000
6.
Where taxable income exceeds Rs. 6,000,000 but does not exceed Rs. 12,000,000
Rs. 654,000 + 22.5% of the amount exceeding Rs. 6,000,000
7.
Where taxable income exceeds Rs. 12,000,000
Rs. 2,004,000 + 32.5% of the amount exceeding Rs. 12,000,000.”
Following are the rates of tax for salaried persons during tax year 2022 (July 01, 2021 – June 30, 2022):
(2) Where the income of an individual chargeable under the head “salary” exceeds seventy-five per cent of his taxable income, the rates of tax to be applied shall be as set out in the following table, namely:—
1. Where taxable income does not exceed: Rs. 600,000 0%
2. Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 1,200,000: 5% of the amount exceeding Rs. 600,000
3. Where taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 1,800,000: Rs. 30,000 plus 10% of the amount exceeding Rs. 1,200,000
4. Where taxable income exceeds Rs. 1,800,000 but does not exceed Rs. 2,500,000: Rs. 90,000 plus 15% of the amount exceeding Rs. 1,800,000
5. Where taxable income exceeds Rs.2,500,000 but does not exceed Rs. 3,500,000: Rs. 195,000 plus 17.5% of the amount exceeding Rs. 2,500,000
6. Where taxable income exceeds Rs. 3,500,000 but does not exceed Rs. 5,000,000: Rs. 370,000 plus 20% of the amount exceeding Rs. 3,500,000
7. Where taxable income exceeds Rs. 5,000,000 but does not exceeds Rs. 8,000,000: Rs. 670,000 plus 22.5% of the amount exceeding Rs. 5,000,000
8. Where taxable income exceeds Rs. 8,000,000 but does not exceeds Rs. 12,000,000: Rs. 1,345,000 plus 25% of the amount exceeding Rs. 8,000,000
9. Where taxable income exceeds Rs. 12,000,000 but does not exceeds Rs. 30,000,000: Rs. 2,345,000 plus 27.5% of the amount exceeding Rs. 12,000,000
10. Where taxable income exceeds Rs. 30,000,000 but does not exceeds Rs. 50,000,000: Rs. 7,295,000 plus 30% of the amount exceeding Rs. 30,000,000
11. Where taxable income exceeds Rs. 50,000,000 but does not exceeds Rs. 75,000,000: Rs. 13,295,000 plus 32.5% of the amount exceeding Rs. 50,000,000
12. Where taxable income exceeds Rs. 75,000,000 Rs. 21,420,000 plus 35% of the amount exceeding Rs. 75,000,000]
ISLAMABAD: Pakistan has announced massive cut in subsidies and allocated an amount of Rs699 billion for the fiscal year 2022/2023 as compared with the amount of Rs1.515 trillion in the outgoing fiscal year.
The drastic cut in subsidies has been aimed at curtailing current expenditures to reduce the fiscal deficit.
Pakistan on June 10, 2022 presented its federal budget 2022/2023 which estimated current expenditure at Rs8.69 trillion during the next fiscal year as compared with estimated Rs8.516 trillion in the outgoing fiscal year.
An amount of Rs3.95 trillion has been allocated for mark-up payments for the fiscal year 2022/2023 as against Rs3.14 trillion in the outgoing fiscal year.
A whopping Rs3.44 trillion has been earmarked for mark-up payment on domestic debt during the next fiscal year as compared with Rs2.77 trillion in the current fiscal year. Meanwhile, an amount of Rs511 billion has been allocated for mark-up payment on foreign debt during next fiscal year.
The government estimated an amount of Rs530 billion for payment of pension during the next fiscal year. This amount includes Rs395 billion for the pension of military persons and Rs135 billion for the pension of civil employees.
The government allocated an amount of Rs1.52 trillion for defence affairs and services during fiscal year 2022/2023 as compared with the estimated amount of Rs1.48 trillion in the outgoing fiscal year. The actual allocation was Rs1.37 trillion for the fiscal year 2021/2022.
An amount of Rs100 billion has been allocated for pay and pension during the next fiscal year.
The government earmarked an amount of Rs550 billion for running of civil government during fiscal year 2022/2023 as compared with Rs530 billion in the current fiscal year. The actual allocation for running of civil government was Rs479 billion in fiscal year 2021/2022.
However, the current coalition government led by PML-N in its budget 2022/2023 announced on June 10, 2023 estimated collection of Rs750 billion during the next fiscal year.
The government has estimated a collection of Rs135 billion in the current fiscal year.
The present government also estimated an amount of Rs40 billion through natural gas development surcharge during the next fiscal year as compared with existing estimates of Rs30 billion in the outgoing fiscal year.
An amount of Rs70 billion has been estimated to be collected from royalty on natural gas during the next fiscal year as compared with existing estimates of Rs60 billion in the current fiscal year.
Under the head of gas infrastructure development cess (GIDC) the government is estimating a collection of Rs200 billion during the next fiscal year as compared with existing Rs25 billion in the current fiscal year.
The government has also estimated a collection of Rs10 billion from windfall levy against crude oil as compared with estimated Rs12 billion in the outgoing fiscal year.
ISLAMABAD: The Federal Board of Revenue (FBR) has been assigned a tax collection target of Rs7 trillion for the fiscal year 2022/2023 against the existing target of Rs6 trillion for the outgoing fiscal year.
According to the official documents of the budget 2022/2023, the FBR tax collection has been estimated at Rs7 trillion up 16.66 per cent from Rs6 trillion in the current fiscal year.
The tax collection target under the head of direct taxes has been fixed at Rs2.573 trillion for the fiscal year 2022/2023 as compared to the estimated collection of Rs2.204 trillion in the current fiscal year.
Under the head of direct taxes, the income tax collection target has been set at Rs2.558 trillion as compared with Rs2.191 trillion.
The collection targets for workers welfare fund, workers profit participation fund and capital value tax have been set at Rs6.94 billion, Rs7.46 billion and Rs515 million, respectively.
The FBR has been assigned a target for indirect tax collection at Rs4.431 trillion for the fiscal year 2022/2023 as against estimated collection of Rs3.796 trillion in the outgoing fiscal year.
The collection target for customs duty has been set at Rs953 trillion during the next fiscal year as compared with Rs817 billion in the current fiscal year.
The sales tax collection target has been set at Rs3.076 trillion for fiscal year 2022/2023 as compared with estimated collection of Rs2.635 trillion in the current fiscal year.
An amount of Rs402 billion has been set as target for federal excise duty (FED) collection in the fiscal year 2022/2023 as against the existing estimate of Rs344 billion in the fiscal year Rs344 billion.
