Major changes in tax laws expected through Finance Bill 2024

ISLAMABAD: Major changes are expected in tax laws through the Finance Bill 2024 to increase the cost of financial transactions of the non-filers of income tax returns and introduce enforcement measures of Rs 300-400 billion in 2024-25.

The Finance Bill 2024 would also enhance powers of the Directorate General of Digital Invoicing, Federal Board of Revenue (FBR) to document supply chains of all major businesses.

In this regard, the FBR has drafted set of budget proposals to document economy for the next fiscal year.

Finance Bill 2024: Policy Cell to compile IR budget proposals

To remove discrimination, there is a possibility that the FBR may introduce a single turnover-based registration threshold for all businesses.

The government may implement an overseas vendor registration regime requiring foreign supplier of goods to consumers in Pakistan to register for and collect federal sales tax.

The government may impose a positive duty on input tax claimants to ensure that they are not participating in Missing Trader Fraud arrangements and to report suspicious transactions, with the threat of penalty/ prosecution.

The FBR has proposed uniform changes in Sales Tax Act, Income Tax Ordinance and Federal Excise Act.

According to sources, the FBR has proposed to raise withholding taxes for non-filers specifically on cash withdrawal from the banks by non-filers from 0.6 percent to 0.9 percent to generate additional revenue of Rs 15-20 billion during 2024-25.

On the sales tax side, supplies to un-registered persons would be made costly for the business community.

The proposal is part of the government’s policy to penalise non-filers of income tax returns.

Presently, over Rs 50,000 cash withdrawals by non-filers, in a single day, through credit cards/ ATMs are also be subjected to 0.6 percent withholding tax.

“The present personal income tax rate structure presents several problems. First, while the marginal income tax rate structure is largely progressive, it is only applied to certain types of income, leading to inequities between taxpayers who earn different types of income.

Second, the more preferential tax rates applicable to salaried individuals (as compared to non-salaried individuals) means that individuals could be incentivised to characterize their income as employment rather than business, which may present administrative challenges as it is often not easy to determine if a case falls within an employer-employee or a customer-consultant relationship.

This problem extends to any differences in the final tax burdens imposed on different types of income under the present schedular system, as taxpayers can be expected to engage in tax planning and restructuring to ensure that their income fits within the most tax advantageous category.

Such activities impose economic dead-weight losses as resources are diverted into unproductive planning activities and may cause serious economic inefficiency as taxpayers opt for income-earning activities that may be less efficient, but more lightly taxed,“ sources added.

Copyright Business Recorder, 2024