Karachi, June 29, 2024 – In a surprising move aimed at generating more tax revenue, the government has imposed a 10 percent surcharge on income tax for individuals earning over Rs 10 million.
This measure, revealed during the passage of the Finance Bill 2024, marks a significant shift in the government’s approach to taxation.
According to amendments proposed in the Finance Bill 2024, a new Section 4AB will be added to the Income Tax Ordinance, 2001. This section mandates a surcharge on the income of individuals (salaried or otherwise) and Associations of Persons (AOPs) whose income exceeds Rs 10 million.
The surcharge is set at 10 percent of the income tax levied on the earnings of these individuals and AOPs. This addition increases the tax burden on the salaried class and those conducting business through sole proprietorships or AOPs.
Legal consultants Tola Associates highlighted the impact of this proposal in their commentary on the amendments. They noted that the effective tax rate for individuals and AOPs earning more than Rs 10 million will now be significantly higher. For salaried individuals, the effective tax rate will be 38.5 percent, while for other cases, including professional firms, the rate will be 49.5 percent (44 percent for professional firms).
This new surcharge has sparked concern among high-income earners and business operators, who will face a heavier tax burden starting from the next fiscal year. The government’s decision to impose this surcharge underscores its efforts to enhance revenue collection, but it also raises questions about the potential impact on economic activity and business growth.
As the amended Finance Bill 2024 moves forward, the government will need to address these concerns and consider the broader implications of this significant tax policy change. The new surcharge represents a critical shift in the tax landscape, with substantial implications for high-income individuals and the broader economy.