Salient feature of Income Tax Measures
Following are the salient features of the Income tax measures proposed by the government for FY 2025-26:
Revenue measures:
Digital Transactions Proceeds Levy has been introduced along with necessary changes in Income Tax Ordinance, 2001 to cover domestic vendors supplying digitally ordered goods and digitally delivered services. Banks and courier services designated as withholding agents to capture entire payment chain.
Withholding tax rate increase for specified services from 4% to 6% with the exception of IT and IT enabled Services has been proposed. For other non-specified services, a flat 15% will be imposed and from 10% to 15% on Sportsperson.
Provisions regarding assessment of banking companies has been made more disclosure oriented to determine true and fair income of the banking companies and tax payable thereon.
Tax rate on profit on debt has been proposed to be increased from 15% to 20%. The dividend tax rate has been enhanced to 25% & 15% on dividend from mutual funds.
Pension income received by an individual below the age of 70 years and over and above of Rs. 10,000,000 has been charged to tax at the flat rate of 5%. There will be 0% tax rate on pension income not exceeding Rs. 10,000,000.
Adjustable withholding tax rate on cash withdrawal on non-filers proposed to be increased from 0.6% to 0.8%.
Custodian of debt securities other than Sukuk bonds has been proposed to act as withholding agent to prevent tax evasion due to coupon washing scheme.
Upper cap on profit on debt upto rupees five million under final tax regime proposed to be removed for individuals and Association of Persons (AoP). The tax withheld on profit on debt for company will continue to be adjustable.
Relief measures:
Super tax rates under section 4C proposed to be reduced by half a percentage point for income slabs between Rs. 200 million to Rs. 500 million against each slab respectively.
Tax rates for salaried individuals for income slab upto Rs. 3,200,000 has been reduced to provide relief to lower and middle tiers income bracket. Similarly, surcharge rate proposed to be reduced from 10% to 9% for salaried individuals only.
Income tax exemption along with withholding tax exemption for erstwhile FATA/PATA areas propose for extension for one year i.e. upto TY 2026
25% rebate against tax payable by full time teachers and researchers will be restored retrospectively i.e. from TY 2023 to TY 2025.
Proportionate tax credit to on profit on debt on loan obtained for construction or acquisition of a house of 250 sq. yd. and a flat having 2000 sq ft. or less area.
Streamlining Measures:
Powers of Officer of Inland Revenue to work out Fair Market Rent of a domestic or commercial property proposed to be curtailed to the extent of commercial properties. A flat 4% Fair Market Value (FMV) notified rates by Board or Deputy Collector proposed to be annual rental value of commercial properties unless actual rent declared justified through evidence.
It has been proposed that any purchase from an unregistered person will make the purchaser liable, shifting the focus to those buying from the unregulated market. In such cases, 10% of the purchase-related expenditure will be disallowed.
50% of the expenditure related to purchases will be disallowed in case of payment is received in cash against a single invoiced sale transaction exceeding rupees two hundred thousand by a vendor.
Proportionate depreciation deduction disallowance for the tax year if withholding tax not deducted by the withholding agent. Disallowed amount will not become part of written down value of such capital assets.
No adjustment of brought forward accumulated business losses available to taxpayer in the first tax year and subsequent tax years under Normal Tax Regime after switching from prior applicable Final Tax Regime.
Period of amortization of an intangible asset having undeterminable useful life has been reduced from 25 years to 15 years.
Coal supply scope of person engaged in coal mining project in Sindh has been enhanced. Such person can now supply coal to any sector of economy and pay income tax on income from such supply and also can avail one hundred percent tax credit on supply to power generation projects.
Period of three years carry forward for adjustment of minimum tax on turnover has been reduced to two years.
Limitation period of 180 days provided for completing proceedings for amendment of assessment has been withdrawn.
Appeal procedure before appellate fora has been majorly reverted back to the period which was in vogue prior to Tax Laws (Amendment) Act, 2024.
Recovery proceeding for immediate payment or specified time limit in the notice against a taxpayer can only be initiated where the decisions at both the forums i.e. Appellate Tribunal and High Court, are against the taxpayer.
Board power to grant condonation has been restricted to an aggregated period of two years and in the case of huge revenue loss, the same can be extended for a longer period by processing through a committee.
All the entities in a group structure has been made mandatory to derive income chargeable under Normal Tax Regime for availing group relief.
Table (I) and Table (II) of clause (C66) of Part I of Second Schedule to the Ordinance listing entities granted complete exemption on any income and exemption subject to 100C provision respectively have been merged. Now all entities require approval under 100C to be declared as Non-Profit Organization and availing exemption against income.
Exemption to Special Economic Zone (SEZ) and Special Technology Zone (STZ) entities, developers has been restricted to TY 2035 or expiry of ten years exemption period, whichever is earlier.
PROCEDURAL MEASURES:
All online marketplace, payment intermediary and courier service will file a statement to Commissioner sharing data of sellers involved in digitally ordered goods and digitally delivered services.
Online marketplace made responsible to get registered all sellers using their platform in e-commerce. * Sharing of taxpayer data with Tax Policy Office (TPO) and anonymized data with international donor and recognized universities have been allowed.
SALIENT FEATURE OF CUSTOMS DUTY
Following are the salient feature of the Customs Duty proposed by the government for FY 2025-26:
Guiding Principles:
Export-led growth.
Consumer welfare.
Availability of cheaper industrial raw materials.
Economic sovereignty.
Employment generation.
FBR Transformation Plan.
Innovation, efficiency and productivity.
Tariff rationalization:
New tariff slabs of 5%, 10% and 15% introduced.
Existing tariff slabs of 3%, 11% and 16% abolished.
0% tariff slab, previously applicable on 2201 tariff lines, extended to further 916 PCT codes.
CD reduced on goods falling under 2624 PCT codes.
Reduction in additional customs duty rates:
Reduced from 2% to 0% on Tariff slabs of 0%, 5% and 10%, consisting of 4,383 tariff lines, except 95 tariff lines chargeable to ACD @2%.
Reduced from 4% to 2% on 518 tariff lines under tariff slab of 15%.
Reduced from 6% to 4% on 2166 tariff lines under tariff slab of 20%.
Reduced from 7% to 6% on 468 tariff lines under tariff slabs of above 20%.
Review of regulatory regime:
Regulatory duty on goods falling under 554 PCT codes removed.
Rate of Regulatory duty reduced on goods falling under 595 PCT codes.
Maximum rate of RD reduced from 90% to 50%.
Review of exemption regime:
To streamline and reduce the cost of exemptions, 479 entries in Part-I, Part-III and Part-VII of Fifth Schedule deleted.
Legislative changes:
Provision for establishment of Centralized Assessment Units (CAUs) and Centralized Examination Units (CEUs) for transparent, speedy and uniform assessments
Provision for establishment of Digital Enforcement Units (DEUs) at key locations and to use technology to strengthen anti-smuggling operations.
Cargo Tracking System (CTS) introduced for monitoring the movement of cargo. The system will identify the movement of smuggled/non-duty paid cargo through the use of technology while facilitating Bonafide cargo.
Incentivizing pre-arrival clearance by allowing filing of Goods Declarations without advance payment of duties and taxes.
To reduce litigation, the existing limit of Rs. 20,000/- for initiating contravention proceedings enhanced to Rs. 100,000/- subject to payment of recoverable amount.
To reduce port congestion and dwell time, penalty introduced for unclaimed/uncleared cargo beyond specified time limit.
Time period for adjudication of cases and filing of appeals before Appellate Tribunal rationalized.
Directorate General of Intelligence and Investigation, Customs and Directorate General of Risk Management System merged and re-organized for effective intelligence gathering, targeted operations and advancement of RMS.
A new Directorate General of Customs Auction has been created to streamline the auction of goods.
A new Directorate General of Communications and Public Relations has been created for dissemination of Customs related information for trade facilitation and stakeholder engagement.
Provision to hire services of technology specialists, auditors, accountants and goods evaluators on short-term contracts for specialized functions.
Provision for establishment of Customs Command Fund introduced to incentivize anti-smuggling operations.
De-minimis limit for courier/postal parcels reduced to PKR 500 to check misuse.
Facility of scrapping and mutilation of goods at ports restricted to bonafide requests up to 10% of the cargo.
Provision added to discourage attempts of belated claim of ownership of goods liable for confiscation by filing frivolous appeals before the appellate fora.
Provisions has been added that a tampered chassis vehicle shall be presumed to be a smuggled vehicle, irrespective of its registration status with MRAs.
SALIENT FEATURE OF SALES TAX ON SERVICES
Following are the salient features of the Sales Tax on Services proposed by the government for FY 2025-26:
Revenue measures:
Integration of service providers with Board’s computerized system for real-time reporting of taxable service activity – General Order to prescript mode and manner.
Board to notify a Negative List of exempt services for harmonized, smooth and gradual transition from the positive list to the negative list. This will expand the scope of services leviable to service sales tax under Islamabad Capital Territory.
Streamlining measures:
Exemption of sales tax on services acquired by diplomats and diplomatic missions etc. aligned with the scope of exemptions to such persons available under the Sales Tax Act, 1990 for uniformity and harmonized regime on goods and services.
FEDERAL EXCISE DUTY:
Power to seize and confiscate counterfeited cigarettes, beverages or goods:
To create deterrence, dutiable goods manufactured or produced without affixing or affixing counterfeited tax stamps, banderols, stickers, labels or barcodes are proposed to be made liable to seizure along with the conveyance used for movement of such goods. Furthermore, such seized goods are also made liable to outright confiscation.
Appeals:
The procedure for filing appeals to the Commissioner (Appeals), the Appellate Tribunal Inland Revenue, and references to the High Court has been streamlined. The pecuniary jurisdiction of the Commissioner (Appeals) has been withdrawn. However, a registered person will have the option to file an appeal directly with the Appellate Tribunal Inland Revenue without first availing the right of appeal before the Commissioner (Appeals).
Withdrawal of FED on allotment or transfer of residential / commercial property:
Federal excise duty on the allotment and transfer of residential and commercial plots, imposed through the Finance Act, 2024, is now proposed to be withdrawn.
Authorize officers of other department for enforcement actions:
It is proposed that FBR may be empowered to authorize officers or employees from other departments within the Federal or Provincial Governments, through a notification in the official Gazette, to perform functions or exercise powers under section 26 (power to seize dutiable goods) and sub-section (1) of section 27 (confiscate dutiable goods) of the Act.