• Retains all taxes introduced in mini-budget announced in mid-February
• Aims to give away Rs23bn to industries and individuals

ISLAMABAD: The government has announced new revenue measures of Rs223 billion in the latest budget but retained all taxes introduced in a mini-budget unveiled in mid-February.

Those revenue measures announced in the supplementary budget — raising the general sales tax from 17 per cent to 18pc, imposing a 25pc sales tax on luxury item imports, and increasing taxes on cigarettes and drinks — would help the government generate over Rs500bn in additional revenue in the tax year 2023-24.

The government will share tax details with the IMF, and tax officials hope that the Fund would not raise any objections as all of its concerns had been addressed.

As per the proposed plan, under the revenue relief changes announced in the Finance Bill 2023, the government aims to give away Rs23bn to industries and individuals. Of these, Rs13bn has been given in customs duty and Rs10bn in income tax. No relief has been announced in sales tax and excise duty.

The revenue measures under income tax will generate Rs185bn, followed by Rs22bn from sales tax, Rs4bn in excise duty, and Rs12bn from customs duty. The net revenue impact will be Rs200bn after the deduction of relief measures.

The government hopes to achieve a 28pc higher revenue target for the next fiscal year based on a projected GDP growth of 3.5pc, average inflation of 21pc and revenue measures.

Official documents suggest that the autonomous growth in revenue (to come from GDP and inflation) is projected at Rs1,764bn in the 2023-24 fiscal year. The cumulative impact of all these measures will be Rs879bn to reach the target of Rs1.98tr.

Major relief is given to the IT sector on exports, solarisation, agriculture and real estate.

Income tax

The Finance Bill suggests keeping the super tax and making it fair for everyone earning over Rs150 million. There will be three new income levels: Rs350m to Rs400m, Rs400m to Rs500m, and above Rs500m. They will be taxed at 6pc, 8pc, and 10pc, respectively.

A 0.6pc withholding tax will be charged again on citizens not on the Active Taxpayers’ List (ATL) when they withdraw cash beyond Rs50,000. The withholding tax rates on goods supply (except rice, cotton seed, or edible oils), services (except electronic and print media advertising), and contracts (except sportspersons) will increase by 1pc.

The withholding tax rate for commercial importers of specific goods will increase by 50 basis points to 6pc. A final withholding tax of 10pc will be charged on bonus shares issued by a company, or 20pc for non-filers of tax.

The withholding tax rate on payments to non-residents using debit/credit or prepaid cards will increase from 1pc to 5pc for filers, and from 2pc to 10pc for non-filers. An adjustable advance tax of Rs200,000 will be charged when issuing a work permit/visa for a foreign domestic helper.

An additional tax of up to 50pc may be charged on the income of a person or group due to extraordinary gains from outside factors.

The Finance Bill suggests continuing the 0.25pc fixed rate on exports of IT and IT-enable services (ITeS) for tax years 2024-2025. Sales tax return filing for IT exports will be removed. A 20pc tax rate will be applied to banking company income from additional advances to the IT and ITeS sector.

The business turnover limit for manufacturers will increase from Rs250m to Rs800m to qualify for the small and medium enterprise (SME) tax regime. IT and ITeS will be included in the SME definition.

The foreign remittance limit will increase from Rs5m to rupees equivalent to $100,000. A 2pc final withholding tax on immovable property purchases by non-resident holders of Pakistan-origin card (POC) or National Identity Card for Overseas Pakistanis (Nicop) will be waived if purchased with foreign remittances.

Youth entrepreneurs (up to age 30) will receive a 50pc reduction in tax liability for three years. The concessionary tax rate of 20pc for banking company income from additional advances to low-cost housing, agriculture, and SMEs (including IT and ITeS) will be extended for two years.

Sales tax, excise duty

The government has withdrawn sales tax on edible products sold in bulk under brand names or trademarks. Sales tax has been increased from 12pc to 15pc on supplies made by point-of-sale (POS) retailers dealing in leather and textile products.

A federal excise duty (FED) has been imposed on energy-inefficient fans at a rate of Rs2,000 per fan and incandescent bulbs at 20pc ad valorem. The scope of FED on services has been expanded to include royalty and fees for technical services.

Sales tax has been exempted for another year ending June 2024 on contraceptives and accessories, plant saplings, combine harvesters, dryers for agricultural products, no-till-direct seeders, planters, trans-planters, other planters, bovine semen, and the import of IT equipment by IT and ITeS exporters registered with the Pakistan Software Export Board.

In the federal capital, a 15pc tax will be charged on electric power transmission services. The rate has been reduced to 15pc from 16pc on IT-based system development consultants. A lower rate of 5pc is proposed for services provided by restaurants and other food outlets if payment is made through debit or credit cards, mobile wallets, or QR scanning.

Customs measures

The government has announced a series of relief measures to support various industries. These include the exemption of customs duty on the import of machinery, equipment, and inputs for the manufacturing of solar panels, inverters, batteries, and allied equipment.

In addition, three more drugs have been included in the duty-free regime. The government has also allowed the duty-free import of IT-related equipment equivalent to 1pc of their export proceeds. Customs and additional customs duties have been reduced on the import of intermediary/industrial inputs falling under 10 Pakistan Customs Tariff (PCT) codes.

Published in Dawn, June 10th, 2023