Pakistan Maintains Normal Tax Regime for Exporters

Pakistan Maintains Normal Tax Regime for Exporters

Islamabad, June 28, 2024 – National Assembly of Pakistan on Friday passed the 2024-25 budget, maintaining a normal tax regime for exporters despite significant criticism.

The budget, which includes some modifications from the initial proposals announced on June 12, 2024, has key implications for various sectors of Pakistan.

One of the notable decisions is that exporters in Pakistan will now be subject to the normal corporate tax rate rather than a 1 percent final tax on export turnover.

Mohammad Sohail, CEO of Topline Securities Limited, explained that the government of Pakistan has upheld its stance of taxing export income at a corporate tax rate of 29 percent plus any applicable super tax. Previously, exporters were paying a flat 1 percent of their export turnover as a final tax.

Here are some key takeaways from the proposed changes as mentioned in the amendment document and announced by the Finance Minister of Pakistan:

Tax on Hybrid Vehicles: The reduced tax rates of 8.5 percent for hybrid vehicles with engine capacities up to 1800cc and 12.75 percent for those between 1801cc and 2500cc will continue. However, the proposed amendments limit this benefit to June 30, 2026.

FED on Cement Increased to Rs4/kg: In a move that surprised many, including reports that suggested a potential rollback, the Finance Minister proposed an increase in the Federal Excise Duty (FED) on cement from Rs3 per kg to Rs4 per kg. This unexpected hike could impact the construction industry, which relies heavily on cement.

Extension of Sales Tax Benefits for FATA and PATA: The government has extended the sales tax benefits for the Federally Administered Tribal Areas (FATA) and the Provincially Administered Tribal Areas (PATA) for another year, until June 30, 2025. This extension aims to support economic activities in these regions.

The budget’s passage underscores the government’s commitment to fiscal reforms and economic stabilization, despite facing opposition and criticism from various sectors. The decision to maintain the normal tax regime for exporters is seen as a move to ensure broader tax compliance and revenue generation.

The budget’s approval also highlights the government’s focus on sustainable economic growth while balancing the need for increased revenue. The increase in FED on cement, while controversial, reflects efforts to boost revenue from sectors capable of bearing higher taxes.

Overall, the 2024-25 budget aims to address Pakistan’s economic challenges through a mix of tax reforms and strategic fiscal measures. As the country navigates its economic landscape, the impact of these changes will be closely monitored by industry stakeholders and economic analysts.