Karachi, November 5, 2024 – In its annual report released on Tuesday, the Federal Board of Revenue (FBR) unveiled a suite of pivotal income tax measures aimed at bolstering revenue collection for the fiscal year 2023-24. These reforms are part of a broader strategy to enhance tax compliance and broaden the tax base, reflecting the government’s commitment to improving fiscal health in a challenging economic landscape.
The FBR’s report outlines several key initiatives designed to optimize revenue generation and ensure a fairer tax system. Notably, these measures include:
1. Enhancement of the Super Tax Scope: The FBR has broadened the scope of the Super Tax under Section 4C of the Income Tax Ordinance, 2001, introducing additional income slabs and rates for individuals and entities with earnings exceeding Rs. 150 million. This progressive approach aims to ensure that high-income earners contribute a fair share of taxes, thereby enhancing equity within the tax system.
2. Reintroduction of Advance Withholding Tax on Cash Withdrawals: A new policy mandates the collection of an adjustable advance tax at a rate of 0.6% from non-Active Taxpayers List (ATL) individuals withdrawing cash exceeding Rs. 50,000 per day from their bank accounts. This move is expected to encourage more individuals to register as taxpayers, thereby increasing the overall number of filers and promoting compliance.
3. Increase in Withholding Tax Rates: The withholding tax rates applicable to the supply of goods, services rendered, and execution of contracts have been raised by 1% for both resident and non-resident entities with a permanent establishment in Pakistan. This adjustment, the first in over five years, is aimed at modernizing the tax regime and ensuring it keeps pace with economic conditions.
4. Final Tax on Bonus Shares: The FBR has reinstated withholding tax as a final tax on bonus shares issued by companies, imposing a rate of 10% for ATL taxpayers and 20% for non-ATL taxpayers. This tax applies to bonus shares, deemed as income for shareholders, and will be calculated based on the day-end price for listed companies.
5. Enhanced Withholding Tax Rates on International Payments: To address the outflow of foreign exchange, withholding tax rates on payments made through debit and credit cards for foreign transactions have increased significantly—from 1% to 5% for ATL individuals and from 2% to 10% for non-ATL individuals.
6. Tax on Foreign Domestic Helpers: In a bid to improve tax compliance among employers of foreign domestic workers, an adjustable advance tax of Rs. 200,000 has been levied on employers or sponsors of foreign domestic helpers. This tax will be collected at the time of issuing work permits, thus formalizing the employment of foreign workers and ensuring tax accountability.
7. Imposition of Additional Tax on Exceptional Profits: Recognizing the extraordinary profit margins in several business sectors, the FBR has introduced a provision in the Income Tax Ordinance, 2001, allowing for an additional tax of up to 50% on income, profits, and gains reported in financial statements. This measure aligns with international best practices and aims to tax excessive profits more rigorously.
These comprehensive measures signify the FBR’s proactive approach to reforming Pakistan’s tax landscape. By targeting high earners and previously untaxed sectors, the FBR aims not only to increase revenue collection but also to create a more equitable tax system that addresses the needs of a diverse economy.
As these policies are implemented, the FBR anticipates that they will yield significant results in enhancing compliance, expanding the taxpayer base, and ultimately contributing to Pakistan’s economic resilience. The commitment to reform is a critical step towards achieving fiscal stability and ensuring that the country meets its financial obligations in a dynamic global economic environment.
