The Finance Bill 2023 has come under scrutiny from PwC – A. F. Ferguson Chartered Accountancy Firm, as it is seen as a budget that primarily focuses on taxing already taxed sectors. According to the renowned financial consulting firm, the budget does not bring about substantial changes in the tax policy and fails to address the issue of undocumented sectors contributing to the tax gap.
PwC – A. F. Ferguson highlights that the increased rates of withholding taxes and the reliance on indirect taxation may inadvertently encourage the growth of the undocumented economy.
The firm argues that the budget’s revenue measures seem to be quick fixes aimed at meeting short-term revenue targets without considering their long-term negative impact on overall economic growth.
Furthermore, it criticizes the lack of significant tax relief for lower income groups, including salaried individuals.
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The firm points out some key amendments proposed in various fiscal laws, which include:
1. Progressive rates proposed for super tax on high earning persons ranging from 1% to 10%.
In complete disregard to the commitment of seeking a one-time 10% super tax from certain sectors, the same has been extended to persons from all sectors having income in excess of Rs 500 million.
Such higher rate of tax has been made perpetual thus substantially increasing the overall tax costs for the businesses.
2. Re-introduction of 10% final tax on bonus shares issued by companies.
3. A new concept of ‘additional tax on income, profits and gains’ with a capped rate of 50% introduced for extra ordinary incomes arising from economic factors to be determined by the Federal Government for preceding five years. This concept is subject to serious legal challenges in view of the principles laid down by Higher Courts.
4. Enhancement of withholding income tax rates for suppliers, service providers, contractors and commercial importers.
READ MORE: NCCPL Authorized to Collect Super Tax on Capital Gains
5. Sales tax rate on retailers of textile and leather products enhanced from 12% to 15%.
6. Withdrawal of exemption of sales tax on edible products sold in bulk under brand names or trademarks.
7. Reduction in rate of minimum tax by 0.25% on turnover for listed companies.
8. Special tax regime for Small & Medium Enterprises extended to IT & IT enabled services. Turnover threshold enhanced from Rs 250 million to Rs 800 million. Five years’ income tax holiday introduced for certain Agro based SMEs.
9. Instead of completely eliminating the misused immunity from probe into sources of foreign remittances, the threshold of immunity has been enhanced from Rs 5 million to equivalent USD 100,000 per annum.
10. Reintroduction of 0.6% advance tax on cash withdrawals by non-filers.
11. Definition of associates for income tax purposes expanded to include transactions with persons resident in zero taxed jurisdictions.
12. Exclusion of non-resident Pakistanis from collection of 2% advance tax on purchase of immovable properties.
13. 50% reduction in tax liability for three years for youth entrepreneurship.
READ MORE: Finance Bill 2023 Proposes Reduced Tax Rates on Additional Advances for IT Sector
14. Exemption on profits and gains on sale of immovable property or share of special purpose vehicle to REIT scheme extended upto June 30, 2024.
15. Lower rate (20%) prescribed for banking companies in relation to income from additional advances to IT Sector.
16. Production, transmission and distribution of electricity to be excluded from the purview of federal sales tax and corresponding inclusion in Islamabad sales tax on services in accordance with the decision of National Tax Council.
17. Amendment in the definition of Tier-1 retailers to exclude jewelers and certain shop covered area-based retailers.
18. The scope of FED on services is proposed to be enhanced by adding royalty and fee for technical services.
19. Granting the status of cottage industry to the freelance exporter of IT and IT enabled services with consequential exemption from registration and filing requirements.
20. Exemptions provided in fiscal laws to erstwhile tribal areas extended till June 30, 2024.
21. The definition of ‘smuggle’ is proposed to be amended to enable the Customs authorities to conduct anti-smuggling operations anywhere within the territorial limits of the country.
READ MORE: Government Introduces 1% Minimum Tax Rate for PSX Listed Companies
22. Penalties leviable under Customs Act in connection with non-placement of invoices/ packing lists inside the import container or consignment are abolished.
23. Capped amounts of fixed duties and taxes on the import of old and used vehicles of Asian Makes above 1300 CC is proposed to be withdrawn.
