The higher rate of super tax, originally introduced in the Finance Act 2022, has now been extended to encompass all taxpayers across various sectors, according to the newly proposed Finance Bill of 2023.
This move marks a significant change in the taxation landscape, with the highest slab rate of 10% applying to individuals earning income in excess of Rs 500 million, effectively eliminating any sector-based discrimination.
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Initially, the concept of super tax was introduced to target high-earning individuals, who were required to pay a specified percentage at the time of filing their tax returns. For the tax year 2022, slab-wise rates were introduced, with a maximum rate of 4%. However, certain specified sectors were subjected to an enhanced rate of 10% for that year alone, while banking companies were expected to pay a 10% super tax in the tax year 2023.
Challenges to the retrospective application of super tax for the tax year 2022 and the enhanced rate applicable to specified sectors were filed in different High Courts, with the High Court of Sindh ruling against their applicability for that tax year. The decision is currently under review by the Supreme Court.
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The Finance Bill 2023 proposes the introduction of new slab rates for super tax, primarily targeting taxpayers with incomes exceeding Rs 300 million. As a result, the highest slab rate of 10% will be applicable to taxpayers from all sectors, provided their income exceeds Rs 500 million. This amendment aims to eliminate any discriminatory practices and promote a more equitable tax system.
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Previously, it was stated that the enhanced rate of 10% for specified sectors was a one-time measure, with a maximum rate of 4% prescribed thereafter. However, with the newly amended table, it is evident that the maximum rate of super tax has been increased to 10%, applicable to all taxpayers with incomes exceeding Rs 500 million in the tax year 2023 and subsequent years. This change translates into a perpetual enhancement of the effective tax rate for these high-earning individuals.
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The extension of the higher rate of super tax to all taxpayers, regardless of their sector, reflects the government’s efforts to address the issue of income disparity and promote a more progressive taxation system. However, it remains to be seen how this change will impact the overall tax collection and the economy as a whole. The Supreme Court’s decision on the legality and applicability of the super tax provisions for the tax year 2022 will also play a crucial role in shaping the future of this taxation policy.
