Karachi, August 18, 2024 – The Federal Board of Revenue (FBR) has unveiled the latest position on the super tax applicable for the tax year 2024-25, in accordance with the Income Tax Ordinance, 2001, updated up to June 30, 2024.
The super tax, imposed under Section 4C of the Income Tax Ordinance, 2001, targets high-income individuals and entities, reflecting the government’s continued efforts to increase revenue through progressive taxation measures.
Overview of Section 4C – Super Tax on High-Earning Persons
The super tax under Section 4C is applicable from the tax year 2022 onwards. It is imposed at varying rates specified in Division IIB of Part I of the First Schedule of the Income Tax Ordinance, targeting the income of individuals and entities falling within specific income brackets.
The definition of “income” for the purpose of this tax is comprehensive, including:
1. Profit on Debt, Dividends, Capital Gains, Brokerage, and Commission: These are direct income sources subject to the super tax.
2. Taxable Income Excluding Brought Forward Losses: Taxable income under Section 9 of the Ordinance, excluding any brought forward depreciation and business losses.
3. Imputable Income: As defined under clause (28A) of Section 2, excluding income mentioned in the first category.
4. Income Computed Under Specific Schedules: This includes income computed under the Fourth, Fifth, Seventh, and Eighth Schedules of the Ordinance, excluding brought forward depreciation, amortization, and business losses.
Tax Rates for Various Income Brackets
The FBR has specified the super tax rates under Section 4C, which are tiered based on income levels:
1. Income Not Exceeding Rs. 150 Million: No super tax is applicable for this bracket from the tax year 2023 onwards.
2. Income Between Rs. 150 Million and Rs. 200 Million: A 1% super tax is applicable.
3. Income Between Rs. 200 Million and Rs. 250 Million: A 2% super tax is imposed.
4. Income Between Rs. 250 Million and Rs. 300 Million: The tax rate is 3%.
5. Income Between Rs. 300 Million and Rs. 350 Million: A 4% super tax is levied.
6. Income Between Rs. 350 Million and Rs. 400 Million: The tax rate increases to 6%.
7. Income Between Rs. 400 Million and Rs. 500 Million: An 8% super tax is applicable.
8. Income Exceeding Rs. 500 Million: The highest super tax rate of 10% is applied.
Special Provisions and Industry-Specific Rates
The FBR has also outlined specific provisions for certain industries and sectors. For the tax year 2022, entities involved in industries such as airlines, automobiles, beverages, cement, chemicals, cigarettes and tobacco, fertilizers, iron and steel, LNG terminals, oil marketing, oil refining, petroleum and gas exploration, pharmaceuticals, sugar, and textiles are subjected to a 10% super tax if their income exceeds Rs. 300 million.
Additionally, banking companies are also subject to a 10% super tax if their income exceeds Rs. 300 million, but this rate applies from the tax year 2023 onwards.
Compliance and Payment Procedures
Taxpayers liable to pay the super tax must comply with the procedures outlined in the Income Tax Ordinance. The tax is payable on the date and in the manner specified in Section 137(1) of the Ordinance. If the taxpayer fails to pay the due tax, the Commissioner has the authority to determine the tax payable through an order in writing, followed by issuing a notice of demand specifying the tax amount and the time frame for payment.
In cases of non-compliance, the Commissioner is empowered to recover the tax payable under sub-section (1) through the provisions of Part IV, X, XI, and XII of Chapter X, as well as Part I of Chapter XI of the Ordinance. The provisions of Section 147 also apply to the tax payable under this section, ensuring stringent enforcement of the super tax collection.
Implications for Taxpayers and Revenue Generation
The updated super tax structure is part of the FBR’s broader strategy to enhance revenue collection by targeting high-income individuals and entities. This move is expected to generate significant additional revenue for the government, particularly from sectors that have shown robust profitability in recent years.
Taxpayers falling within the specified income brackets are urged to carefully review the updated provisions and ensure timely compliance to avoid penalties. The FBR has also indicated that it may introduce further rules and regulations to facilitate the implementation of Section 4C, which will be notified through official gazette notifications.
The introduction of the super tax reflects the government’s commitment to progressive taxation, where higher earners contribute more towards the country’s fiscal needs. As the FBR continues to refine its tax policies, businesses and individuals are encouraged to stay informed and adapt to the evolving tax landscape.
