Anticipated Tax Measures in the Upcoming Budget: What to Expect

Introduction:

As the fiscal year 2023-24 approaches, speculations are rife about the tax measures that will be included in the upcoming federal budget. Aimed at achieving the tax revenue target and fostering economic growth, these measures cover a wide range of sectors. While the official budget release will provide the final details, here’s an overview of the expected tax measures based on recommendations from analysts at Topline Securities.

1. Tax on Undistributed Reserves:

A new advance tax is expected to be imposed on both listed and unlisted companies, with rates of 5 percent and 7.5 percent respectively. This tax will be adjustable when dividends are distributed. The government is yet to decide whether it will be retrospective or apply only to companies that have not distributed profits recently.

2. Continuation of Super Tax:

The government is likely to continue imposing the super tax on companies, following the model introduced in the previous fiscal year. The super tax was previously imposed on specified sectors with earnings exceeding a certain threshold.

3. Shift from Final Tax Regime (FTR) to Minimum Tax Regime (MTR) for Exporters:

Exporters may be required to pay taxes on their taxable income rather than the current system of paying tax on proceeds deducted by banks. This shift aims to promote documentation within the export sector.

4. Asset Tax/Wealth Tax:

The proposal suggests the imposition of a Minimum Asset Tax (MAT) on movable and immovable assets owned by resident individuals exceeding Rs. 100 million. Additionally, the government is considering the imposition of a wealth tax, known as the Income Support Levy, on all assets, including agriculture, with rates ranging from 0.25 percent to 2 percent.

5. Higher Tax on Non-Filers:

To promote documentation, higher taxes may be imposed on non-filers, particularly on transactions involving the buying and selling of immovable property.

6. GST at 18%:

The government plans to maintain the standard rate of General Sales Tax (GST) at 18 percent, focusing on increasing withholding taxes where applicable.

7. Tax on Agri Income:

Although demands exist to impose higher taxes on agricultural income, provincial governments currently have the authority to levy taxes on such income. However, provinces have shown reluctance to revise the rates.

8. Increase in Valuation of Immovable Properties:

The valuation of immovable properties is expected to increase from July 2023. This aligns with taxation reforms pursued by the Federal Board of Revenue (FBR) under the Pakistan Raises Revenue Project (PRRP) in collaboration with the World Bank.

9. Tax on Deemed Rental Income:

A 1 percent tax on deemed rental income for land held by non-filers has been recommended by the Reforms and Resource Mobilization Commission (RRMC).

10. Tax on Banks:

Continuation of the Super Tax and potential imposition of new taxes on the banking sector are possibilities that cannot be ruled out, given the increased profitability of the sector.

Conclusion:

While the official budget release will provide the complete details, the anticipated tax measures discussed here shed light on the potential fiscal changes in the upcoming fiscal year. It’s important to note that these expectations are subject to change until the official budget is released. The government’s focus on achieving tax revenue targets, promoting documentation, and fostering economic growth will guide the implementation of these tax measures.