Islamabad, June 12, 2024 – The Federal Government of Pakistan has released the Finance Bill for the fiscal year 2024-25, unveiling extensive income tax measures aimed at generating substantial revenue to support the country’s economic needs.
The new measures cover a wide range of income tax regulations, impacting individuals, businesses, and various economic sectors. Here are the detailed revenue measures introduced through the Finance Bill 2024:
1. Personal Income Tax
Non-Salaried Individuals and Associations of Persons:
The tax structure for non-salaried individuals and associations of persons has been revised. Annual incomes up to Rs. 600,000 remain tax-exempt. Beyond this threshold, five progressive tax slabs have been introduced, with rates ranging from 15% to 45%.
Salaried Individuals:
Similarly, for salaried individuals, incomes exceeding Rs. 600,000 per annum are now subject to taxation across five slabs, with rates spanning from 5% to 35%. This aims to enhance revenue from higher earners while maintaining relief for lower-income groups.
2. Higher Tax Rates for Late Filers
To address late tax filings, a new tax category has been created. Late filers, those who submit returns post-deadline solely to avoid non-filer penalties, will face a higher tax rate than regular filers but lower than non-filers. This measure intends to encourage timely tax submissions.
3. Income Tax on Immovable Properties
Purchase of Property:
The new progressive tax rates for property purchases are structured in three categories: filers, late filers, and non-filers. Filers will see tax rates of 3% for properties up to Rs. 50 million, 3.5% for properties between Rs. 50 million and Rs. 100 million, and 4% for properties above Rs. 100 million. Late filers will face rates of 6%, 7%, and 8%, respectively, while non-filers will encounter significantly higher rates of 12%, 16%, and 20%.
Sale of Property:
For property sales, the advance tax rates for filers are 3% for properties up to Rs. 50 million, 4% for properties between Rs. 50 million and Rs. 100 million, and 5% for properties above Rs. 100 million. Non-filers will face a flat rate of 10%, while late filers will be taxed at 6%, 7%, and 8%, respectively, based on property value.
Capital Gains:
A flat 15% tax rate on gains from the disposal of immovable property acquired on or after July 1, 2024, has been proposed for filers. For non-filers, progressive tax rates will apply, with a minimum rate of 15%.
4. Capital Gains on Sale of Securities
Currently, capital gains from securities sales are taxed based on holding periods, with a maximum rate of 15% and exemption beyond six years. From July 1, 2024, capital gains on securities will be taxed at a flat rate of 15% for filers. Non-filers will face standard tax rates, with a minimum of 15% and a maximum of 45%. Additionally, capital gains from mutual funds and collective investment schemes will see an increased tax rate from 10% to 15%.
5. Dividend Income from Mutual Funds
The tax rate on dividend income from mutual funds, currently at 15%, will be raised to 25% if the mutual fund earns 50% or more of its income from profit on debt. This aims to reduce arbitrage between different income sources.
6. Normal Income Tax on Export Income
Income from exports, currently subject to a 1% final tax, will now be taxed at standard rates, with the 1% tax on export proceeds serving as a minimum tax. This change promotes horizontal equity among taxpayers with similar incomes.
7. Strengthening Enforcement for Non-Filers
Non-filers who ignore tax return notices face severe penalties, including SIM blocking, utility disconnection, and travel bans (excluding Hajj and Umrah travelers, minors, students, overseas Pakistanis, and other specified classes). Implementing agencies failing to enforce these measures will face penalties of Rs. 100 million for the first default and Rs. 200 million for subsequent defaults. Traders and shopkeepers not registering under schemes like Tajir Dost Scheme face shop sealing, and repeated failure may lead to imprisonment.
8. Reduced Rate Certificate in Lieu of Exemption Certificate
Exemption certificates for withholding tax on goods supplies and certain transactions will be replaced by reduced rate certificates, ensuring better value chain documentation.
9. Higher Tax Rates for Non-Filers Earning Income from Profit on Debt
The advance tax rate on profit on debt for non-filers will be increased from 30% to 35%, heightening the cost of non-compliance.
10. Broadening the Scope of Withholding Tax
Advance tax will now be collected from all sectors, extending to the entire supply chain of distributors, wholesalers, dealers, and retailers. Non-filers in these categories will face increased rates: from 0.2% to 2% for distributors and wholesalers, and from 1% to 2.5% for retailers.
11. Minimum Value for Income Tax at Import Stage
To counter under-declaration by importers, the FBR will be empowered to set minimum values for tax calculation at the import stage.
12. Higher Withholding Tax on Vehicle Registration
Due to increased vehicle prices, the tax basis will shift from engine capacity to vehicle value percentage for all motor vehicles. For vehicles with engine capacity above 2000cc, the tax percentage will also rise.
13. Withdrawal of Subsidy Income Exemption
Subsidy Receipts:
The exemption on subsidy receipts for companies, viewed as income, will be withdrawn to ensure horizontal equity.
Cigarette Supply:
The reduced 1% rate on cigarette supply by distributors will increase to 2.5%.
14. Allocation of Advertisement Expense
25% of the total advertisement expense of a locally incorporated subsidiary must now be shared with the non-resident associate receiving royalty payments from Pakistan.
15. Increase in Default Surcharge Rate
The default surcharge rate, currently 12% per annum, will be raised to KIBOR plus 3% to align with the interbank rate and enhance tax arrear recovery.
The Finance Bill 2024 introduces comprehensive income tax measures aimed at increasing revenue, enhancing tax compliance, and ensuring equity across different taxpayer categories. These reforms target various sectors, from personal income and immovable property transactions to capital gains, export income, and withholding taxes, reflecting the government’s commitment to robust fiscal management and economic stability.