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Print Print 2024-05-20

Govt eyeing new steps to achieve Rs1trn plus taxation

  • Budget makers are considering further increasing difference of withholding tax rates between filers and non-filers of returns
Published May 20, 2024

ISLAMABAD: New taxation measures of Rs 1.2 trillion to Rs 1.3 trillion in coming budget (2024-25) would include enhanced rates of withholding taxes on transactions of non-filers and increased tax rates on buying/ selling of immovable properties, registration of vehicles and revision in income tax slabs for salaried class.

Sources told Business Recorder that the government has proposed the International Monetary Fund (IMF) to increase income tax exemption threshold up to Rs1 million for salaried class.

There is a proposal to rationalise the tax rates for individuals by removing the salaried/ non-salaried distinction and reducing the number of rate slabs.

FBR proposes Rs1.3trn new taxation measures

In addition, the budget makers are considering further increasing the difference of withholding tax rates between filers and non-filers of returns. There is a proposal to increase advance income tax on the import of machinery by 1 percentage point, having a revenue impact of Rs2 billion per month.

The second proposal is to increase advance income tax on the import of raw materials by industrial undertakings by 0.5 per cent, expected collection of Rs2 billion per month.

The third proposal is to raise advance income tax on the import of raw materials by commercial importers by 1 per cent having a revenue impact of Rs1 billion per month.

The fourth proposal is to increase withholding tax on supplies by 1 per cent, expected collection of Rs 1 billion per month.

The fifth proposal is to increase withholding tax on services by 1 percentage point, expected collection of Rs1.5 billion per month, and increase withholding tax on contracts by 1 per cent having revenue impact of Rs1.5 billion per month. The sixth proposal is to raise withholding tax on cash withdrawal from banks by non-filers from 0.6 per cent to 0.9 per cent.

According to sources, the FBR is also considering repealing remaining exemptions for donations and non-profit organisations contained in the Second Schedule (Exemption Schedule) of the Income Tax Ordinance and making them eligible for tax credits The FBR is reviewing the charitable donations tax credit, as well as, the credit for certain persons, to assess whether changes to eligibility requirements would be desirable.

The IMF has proposed that a comprehensive review of the tax incentive regimes should be undertaken with a view to eliminate and streamline unnecessary or duplicative incentives, and to adopt cost-based tax incentives, such as accelerated depreciation, where incentives are absolutely necessary. Rather than having stacked incentives, it is preferable to have a more regular tax system with a lower tax rate supported by a wider tax base.

Other features of the tax system which pose impediments against investments, such as its complexity and high compliance burden, will, when removed, have a positive effect on the investment climate.

Consideration could also be given as to whether the current classical system of taxation that taxes both corporate profit and dividend distributions, resulting in double taxation of corporate income, ought to be replaced by either a one-tier corporate tax system or an imputation system, it added.

The IMF further proposed that 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 incentivized to characterise 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, the IMF added.

Copyright Business Recorder, 2024


Comments are closed.

Usman May 20, 2024 08:32am
Property tax should be at present valuations and country can earn trillions from it and still no one wants to implement it.only poor will be taxed and rich will be fed
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Babar May 20, 2024 09:09am
Just lame reasons to impose higher tax rate.
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Sheheryar Saeed May 20, 2024 09:47am
The only rationale is to push further to salaries class for more taxes. Non Salaries individual having business income can charge personal expenses against their business income.
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Aamir May 20, 2024 12:34pm
@Sheheryar Saeed, so why don't you become a businessman? They also take higher risks and employ salaried persons. Be thankful businessmen are still operating despite rotten policies
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Aamir May 20, 2024 12:36pm
@Usman, Yes it should be so high that all personal wealth and real estate investments should go to the Dubai which is tax free or other better value countries abroad.
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Aamir May 20, 2024 12:37pm
@Babar, they will not cut corruption and high govt and defense expenses but just burden the citizens and businesses
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Builder May 20, 2024 02:00pm
@Aamir it seems you are against taxation of businesses. This resistance to pay taxes leads to corruption and current financial turmoil. The tax guys are bagging money which should go to state.
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imdad kolori May 20, 2024 03:14pm
take salary in cash - soon all people will do that
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Toy Soldier May 20, 2024 03:26pm
Corruption of the corrupt by the corrupt for the corrupt. Country cannot come out of financial mess as long as the present lot of corrupt politicians exist and take turns to rule a hapless population.
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Az_Iz May 20, 2024 04:55pm
Don't increase the burden on honest contributors.
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MT May 20, 2024 06:09pm
@Aamir , If it is taken to Dubai via legal channels, no problem, put the person in tax net.
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KU May 20, 2024 06:46pm
There is still no explanation on untaxed businesses while the bleeding wounds of electricity/gas theft/over billing n billions of expenses on baboos remain unattended.
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Ch K A Nye May 20, 2024 07:29pm
Why isn't it possible to legislate that the State has the right but not the obligation to buy any property at the declared value plus 10% when the Buyers and Sellers transact?
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DR.A.BASHIR May 20, 2024 10:18pm
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Chawla.i May 21, 2024 12:11pm
Banks r investing in T bills, record 7.4trillion this year so no way tax base can improve..r u economists or MoChi ...let money supply revolve in economy not in state bank
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Rehan May 21, 2024 02:35pm
@MT, there are 2 problems. One is flow of FX abroad and second is collapse of Pakistani Real estate market. No country wants investment to flow out into other countries real estate.
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