Expected Tax Measures in 2024-25 Budget to Raise Rs 600 Billion

Expected Tax Measures in 2024-25 Budget to Raise Rs 600 Billion

PkRevenue.com – Analysts at Topline Securities Limited have projected a series of key tax measures that the government is likely to announce in the 2024-25 budget to generate approximately Rs 600 billion in additional revenue.

These measures are deemed necessary to align with the economic stabilization goals and the requirements of the International Monetary Fund (IMF) program.

Pension Tax: One of the significant proposals is the imposition of a tax on pensions. The government is reportedly considering a tax rate of 1-5% on monthly pensions exceeding Rs 60,000, and a 10% tax on pensions above Rs 100,000 per month. This measure, along with potential pension reforms such as voluntary or contributory pension schemes, aims to address the burgeoning pension costs, which were budgeted at Rs 801 billion in FY24. The government could potentially collect Rs 20-40 billion from this initiative alone. Analysts believe that setting a minimum threshold for this tax will protect vulnerable pensioners.

Further Taxes on Non-Tax Filers: To broaden the tax net, the government plans to increase tax rates on non-tax filers, particularly targeting withdrawals of cash over Rs 50,000 from banking channels, transactions involving the buying and selling of immovable property, and vehicle registrations. This measure is expected to encourage more individuals to file tax returns, potentially resulting in an additional Rs 30-40 billion in tax revenue.

Increase in General Sales Tax (GST) by 1%: There is a proposal to increase the GST rate from 18% to 19%, which could contribute Rs 180 billion to the tax collection. However, this measure might be avoided if other proposals, such as withdrawing sales tax exemptions, are sufficient to cover the revenue gap. An increase in GST could have inflationary effects as it would be passed on to consumers.

Carbon Tax: The government has hinted at imposing a carbon tax on petroleum products instead of increasing the sales tax. This approach aligns with efforts to facilitate green bonds and secure cheaper loans from multilateral institutions. Each Rs 5 per litre increase in the carbon tax is expected to generate Rs 90 billion in additional revenue. Assuming a Rs 20 per litre carbon tax implemented gradually over 3-4 months, the government could collect over Rs 300 billion in FY25. This revenue would be classified as non-tax revenue.

Revision in Income Tax Slabs for Salaried Class: Currently, the tax rates for the salaried class are divided into six slabs, with rates ranging from 0% to 35%. Proposals include reducing the number of tax slabs to no more than four and eliminating the preferential treatment for the salaried class compared to non-salaried individuals. Such reforms in Personal Income Tax (PIT) could potentially increase tax collection to 0.5% of GDP, approximately Rs 500 billion, up from the current Rs 300 billion.

Tax on Retailers: Previous governments have attempted to implement a fixed tax regime for retailers but have faced challenges in its enforcement. The current administration is expected to reintroduce this measure, although its successful implementation remains uncertain.

These proposed tax measures reflect the government’s commitment to fiscal discipline and economic stabilization. The additional revenue generated will be crucial in meeting the IMF’s conditions and ensuring the sustainability of Pakistan’s economic growth. As the budget announcement approaches, investors and analysts will closely monitor these developments, which are likely to have significant implications for the country’s financial landscape.

The 2024-25 budget aims not only to address immediate fiscal challenges but also to set the stage for long-term economic stability. By targeting a broader tax base and introducing new revenue measures, the government hopes to reduce the fiscal deficit and create a more resilient economic framework.