Tag: Tax Reforms

  • World Bank proposes tax reforms with 3% GDP growth projection for Pakistan

    World Bank proposes tax reforms with 3% GDP growth projection for Pakistan

    The World Bank has advised Pakistan to implement taxes on the agricultural and real estate sectors and merge the income thresholds for salaried and non-salaried individuals to create a progressive Personal Income Tax (PIT) system.

    If agriculture income and property taxes are effectively enforced, they could contribute 3 per cent of the GDP annually, totaling over Rs3 trillion. The World Bank is awaiting approval for a $350 million allocation for Pakistan under RISE-II, with the meeting date yet to be confirmed.

    Currently, the annual income threshold for salaried individuals is Rs600,000, and for non-salaried income, it stands at Rs400,000, both exempt from taxes.

    The World Bank emphasises the urgency of Pakistan’s fiscal situation and the need to generate revenue and reduce expenditures, recommending taxing the wealthy while protecting the poor.

    The World Bank proposes simplifying the income tax structure by aligning it for both salaried and non-salaried individuals, ensuring progressivity without suggesting a reduction in the current nominal threshold.

    They acknowledge the importance of considering inflation and labour market changes in recent data when reforming the income tax structure.

    The focus of the recommended tax reforms should fall on higher income brackets and include a comprehensive tax package and expenditure reforms to address unsustainable fiscal deficits.

    These reforms involve cutting down on subsidy expenditures, eliminating regressive tax exemptions, and increasing the taxation of high-income earners, particularly in agriculture, property, and retail sectors, to enhance the progressivity of the tax system.

    Regarding a question about lowering the current exemption threshold for salaried workers earning below Rs50,000 monthly, the World Bank’s lead economist clarified that the bank does not recommend a reduction in the current nominal threshold.

    Instead, the emphasis is on streamlining the income tax structure for both salaried and non-salaried individuals to ensure progressivity while protecting the poor during the reform process.

  • Banks will now pay 10% super tax if their earnings exceed Rs30 crore

    Banks will now pay 10% super tax if their earnings exceed Rs30 crore

    The Federal Board of Revenue (FBR) has announced important amendments to the Income Tax Ordinance, 2001 through Finance Act 2023, bringing significant changes to the Super Tax structure. According to the latest income tax circular (2 of 2023), banks will now be required to pay a 10 per cent Super Tax if their income exceeds Rs300 million.

    The Super Tax was initially introduced through the Finance Act of 2022, imposing graduated tax rates ranging from 1 per cent to 4 per cent on income slabs starting from Rs150 million to Rs300 million and above. Certain specified business sectors were subject to a higher Super Tax rate of 10 per cent if their income surpassed Rs300 million.

    New Super Tax slabs

    To enhance the scope of the Super Tax and ensure progressivity and uniformity in the tax rate structure, the Finance Act 2023 has introduced additional income slabs. These new slabs are as follows: Rs350 million to Rs400 million, Rs400 million to Rs500 million, and Rs500 million and above, with corresponding Super Tax rates of 6 per cent, 8 per cent, and 10 per cent, respectively. These new Super Tax rates will apply to all taxpayers across the board for the Tax Year 2023 and beyond.

    Addressing a significant concern, the Finance Act 2023 has also clarified the payment procedure for the Super Tax. The ambiguity surrounding whether the Super Tax under section 4C of the Ordinance should be paid as a lump sum at the time of filing income tax returns or in monthly/quarterly installments of advance tax under section 147 of the Ordinance has been resolved.

    The introduction of a new sub-section (5A) in section 4C now requires Super Tax liability to be paid in conjunction with monthly/quarterly advance tax installments, depending on the taxpayer’s circumstances. Corresponding amendments have been made in section 147 of the Ordinance to facilitate this process.

    This move is aimed at broadening the scope of the Super Tax and making it a more progressive and comprehensive tax measure. The FBR expects these changes to contribute significantly to the country’s revenue collection efforts while ensuring a fair and equitable tax system for all taxpayers.

  • IMF wants Pakistan to implement property and agriculture tax

    IMF wants Pakistan to implement property and agriculture tax

    The International Monetary Fund (IMF) has recently granted Pakistan a $3 billion loan, subject to certain conditions that require a second review.

    According to reports, the Washington-based institution has asked the Pakistani government to devise a plan for implementing taxes on the real estate and agricultural sectors, with the aim of bolstering the country’s revenue generation.

    The IMF perceives a potential for Pakistan to enhance its revenue through taxation of these two sectors.

    Should the plan devised by the Federal Bureau of Revenue (FBR) gain approval from the IMF, it will result in the release of a mini-budget. However, the decision to impose taxes on the property and agriculture sectors ultimately rests with the new government.

    Additionally, sources indicate that assistance will be sought from the World Bank to facilitate the taxation of these sectors.

    It is worth noting that Pakistan recently received the initial disbursement of $1.2 billion from the IMF.

    IMF officials emphasise that Pakistan must fulfill the conditions outlined in the agreement to achieve economic stability.

    Prime Minister Shehbaz Sharif has also assured the IMF Managing Director of the government’s commitment to implementing the agreement in its entirety.

  • Budget 2023-24: FBR considers decreasing duty on mobile phones

    Budget 2023-24: FBR considers decreasing duty on mobile phones

    The Federal Board of Revenue (FBR) is considering options to decrease the duty on mobile phones in the forthcoming federal budget for the fiscal year 2023-24. The budget is expected to be disclosed on June 9. The FBR is taking into account the suggestions put forward by mobile phone traders.

    Previously, the government was obligated to raise the duty on mobile phones by 100 per cent to 150 per cent, resulting in a deposit of only Rs5 billion to Rs10 billion in the national exchequer, instead of the anticipated Rs85 billion.

    According to The News, the number of mobile phone users in Pakistan has surpassed 186.9 million. To address the financial crisis of the current fiscal year, the new budget is contemplating a significant reduction in the rates of duties on cellular phones. Currently, the duties on small and big mobile phones stand at approximately 100 per cent to 150 per cent.

    The mobile industry is teetering on the verge of collapse due to the increased taxes. This not only affects traders but also poses difficulties for millions of people who rely on earning a livelihood through this sector.

    It has been reported that a delegation from the Mobile Phones Traders Association has submitted recommendations to Finance Minister Ishaq Dar and other senior officials. The delegation has assured that efforts will be made to incorporate these recommendations into the budget. The proposals and recommendations are currently under review for potential inclusion in the new budget.

    It has come to light that a 75 per cent duty is imposed on cellular phones in Pakistan, in contrast to other countries in the region such as Singapore, Bangladesh, and Turkey, where the duty is not as high. Consequently, people have been using smartphones without paying duties in collusion with the FBR.

    The additional 100 per cent to 150 per cent duty on cell phones has made them unaffordable for the poor, laborers, daily wage earners, students, professionals, the legal community, and civil society.

    Munir Beg Mirza, the General Secretary of the All Pakistan Mobile Phones Traders Association, stated that the ban on importing used mobile phones has led to an increase in smuggling to favor a few companies. Additionally, people are illegally using smartphones without paying substantial taxes, thus causing a loss to the national treasury.

    He further noted that if an appropriate duty is imposed in the new financial year, not only will every consumer pay tax, but the government will also receive Rs100 billion instead of Rs5 billion in revenue from phones.

  • Pakistan reaffirms commitment to $6.5 billion IMF bailout, dismissing rumors of retraction

    Pakistan reaffirms commitment to $6.5 billion IMF bailout, dismissing rumors of retraction

    On Wednesday, Minister of State for Finance and Revenue, Dr Aisha Ghaus Pasha, dismissed rumours of Pakistan retracting from the anticipated $6.5 billion bailout programme with the International Monetary Fund (IMF).

    According to Geo, Pasha clarified that discussions were ongoing between the Federal Board of Revenue (FBR) and the Finance Division, emphasising that Pakistan remained engaged with the IMF. Speculation arose when reports suggested that Pakistan had taken a firm stance against the IMF and refused to share details of the upcoming budget.

    This led to concerns that the financially strained nation was reneging on the deal originally agreed upon by the Imran Khan-led Pakistan Tehreek-e-Insaf (PTI) government.

    Pasha expressed the government’s commitment to continuing the IMF programme, acknowledging the political sacrifices made by the coalition government to meet the Fund’s conditions. Negotiations with the IMF have been aimed at restarting the $6.5 billion bailout programme, which is crucial for Pakistan to avert default.

    During a meeting with journalists after the Senate Standing Committee on Finance, Pasha revealed that the coalition government would present its second budget in the first week of June, marking the second year since assuming power in April. The Finance Bill 2023-24 is scheduled to be presented in the National Assembly on June 9, while the Economic Survey 2022-23 will be released on June 8, according to sources.

    Assuring the public during the briefing, Pasha affirmed that the government would strive to alleviate the burden on the masses amidst these challenging times, as the budget figures were being finalized. However, she cautioned that the situation would remain difficult until the tax-to-GDP ratio reached double digits, emphasizing the necessity of expanding the tax base.

    The state minister disclosed the Ministry of Finance’s plan to transition from indirect taxes to direct taxes, stating that such a shift would reduce the burden on the general population. She reiterated the government’s intention to introduce direct taxes in the upcoming budget for the fiscal year 2023-24, expressing concern over the negative impact of tax concessions on the economy.

    Meanwhile, FBR Chairman Asim Ahmed briefed the committee on the capital value tax, disclosing that the revenue generated from this tax during the current financial year amounted to Rs9 billion.

    Addressing the concerns of senators regarding the implementation of capital valuation tax on domestic and foreign assets, Ahmed clarified that this measure aimed to include the wealthier individuals in the tax net. He also noted that the revenue board was registering new individuals with foreign assets while maintaining records of those already registered.