It is reassuring to witness that the proposed Federal Budget for the Financial Year 2022-23 is based on the principles of a progressive taxation system with a visible emphasis on direct taxes. These include increasing income tax & capital value tax, taxing the unproductive assets and those who make exorbitant profits, protecting the productive assets, and bringing equity through the distribution of wealth by taxing the wealthy and affluent. Unfortunately though but the investment climate and taxation structure in Pakistan do not encourage entrepreneurship. Rather it discourages new businesses and encourages massive investment in real estate. This is a multi-faceted menace and is largely anti-growth. It triggers speculation and causes an artificial increase in the prices of real estate taking housing facilities out of the reach of the middle classes. The money generated from this dead investment is a major source of inflation and social disharmony. We must steer the real estate sector in a direction where it can become the engine of while simultaneously discouraging speculative investment in open plots. It has been unfortunate that the major thrust of recovery of income tax has been through withholding taxes. Adding fuel to fire, the presumptive tax regime that is largely run through withholding taxes has transformed its character from direct to indirect tax. Thus, withholding tax regime has become inflationary in its nature. Moreover, it not only creates distortion in the taxation structure but also reduces the ease of doing business. Time has already come to take concrete measures to correct this distortion and create a business-friendly environment. Therefore, the proposed Federal Budget aims at reducing withholding taxes, converting final taxes to minimize taxes, and minimum taxes to adjustable taxes.
The current challenging times in Pakistan warrant huge sacrifices from the rich and affluent. It is about time that the privileged and affluent sections of society must come forward to play their pivotal role in the socio-economic development of Pakistan.
In an endeavor to provide relief to the salaried individuals, the basic threshold of taxable salary is proposed to be enhanced to 12 lac from the current 6 lac rupees. This would pass tens of billions of rupees benefit to salaried people. This will generate a positive economic cycle whereby this money would get transferred to the businesses as the disposable income of salaried people increases. Therefore ultimately, the government will benefit through the thriving of the business, the creation of more jobs, and tax revenues in the future. In the face of inflation, the basic threshold of exemption for business individuals and AOPs is proposed to be enhanced from 4 lac to 6 lac. A fixed tax regime for small retailers is being proposed wherein tax will be collected along with electricity bills through a simplified registration and reporting regime. The proposed tax will range from Rs.3000 to Rs.10,000 and this will be a final discharge of tax liability. Adjustment of 100% depreciation for Industrial undertakings is now proposed in the first year unlike the existing 50%. It is also proposed that industrial undertakings be allowed to adjust tax deducted at the import stage on all materials under the Twelfth Schedule. Furthermore, a lot of focus is on taxing the rich and unproductive sectors. As we all know that the major part of the wealth of affluent people is parked in the real estate sector. This is a double-faceted menace. It leads to the accumulation of unproductive assets and raises the prices of housing for the poor and lower-income groups. Therefore, all persons who have more than one immovable property exceeding Rs.25 million situated in Pakistan shall be deemed to have received rent equal to 5% of the fair market value of the immovable property and shall pay tax at the rate of 1% of the fair market value of the said property. However, one house of each individual will be excluded.
The current challenging times in Pakistan warrant huge sacrifices from the rich and affluent. It is about time that the privileged and affluent sections of society must come forward to play their pivotal role in the socio-economic development of Pakistan. We desperately need a taxation structure where all classes of assets are taxed in an equitable manner. In order to make it happen, capital gain on all classes of assets is now proposed to be taxed at 15% where the holding period of such asset is one year or less. The capital gain payable on such assets will reduce to zero after a holding period of 6 years, reducing tax liability by 2.5 % in each subsequent year. Furthermore, the advance tax rate on the purchase and sale of property for filers is proposed to be enhanced to 2% from the current 1%. Moreover, in order to discourage the undocumented economy, the advance tax rate for buyers of immovable property who are non-filers is proposed to be enhanced to 5%. In order to shift the tax burden from poor to rich, all persons inclusive of companies and associations of persons, earning an annual income of Rs. 300 million or more, are proposed to pay 2% tax. Building further on the policy of shifting the burden of tax on the affluent class, advance tax on motor vehicles exceeding 1600cc is proposed to be increased. Furthermore, the advance tax will also be collected at the rate of 2% of the value in cases of high-value hybrid and electric vehicles. Additionally, the rate of advance tax on registration of vehicles for non-filers will be enhanced to 200% from the current 100%. As the banking sector has earned windfall gains due to higher interest rates and risk-free investment in Government securities, therefore, the tax rate on banking companies is proposed to be enhanced to 45% from the current 39% inclusive of super tax.
Pakistan is suffering an acute shortage of energy. Thermal energy is expensive due to skyrocketing fuel prices. Therefore, renewable energy is the possible way forward. It is proposed to exempt import and local supply of solar panels from sales tax. Besides, consumers using fewer than 200 units of electricity will be facilitated in obtaining soft loans on easy terms from the banks for the purchase of solar panels. This will not only promote eco-friendly use of energy but also save precious foreign exchange spent on the import of fuel and gas. In order to facilitate agriculture, it is proposed to withdraw sales tax on the supply of tractors, agricultural implements, and various seeds including wheat, rice, maize, sunflowers, canola, and rice. Charitable hospitals are contributing substantially to providing health facilities. It is proposed to extend complete exemption on import/ donations to charitable hospitals and local supplies including electricity to charitable/ non-profit hospitals with 50 or more beds. Likewise, the government is striving to strengthen agriculture. Various relief measures have been taken for farm mechanization and logistics. In order to give relief to the agricultural sector and farmers of the country, Customs duties exemption have been extended further on agricultural machinery pertaining to irrigation, drainage, harvesting/post-harvest handling and processing, greenhouse farming, and plant protection equipment as well as machinery, equipment, and other capital goods for miscellaneous agro-based industries. Similarly, to provide a boost and further strengthen the industrial economy, customs duty, additional customs duty, and regulatory duty on around 400 tariff headings pertaining to different industrial/manufacturing sectors have been rationalized. The Regulatory Duty (RD) regime has been reviewed and regulatory duties on multiple items have been either reduced or removed. However, it is also pertinent to mention that in many cases regulatory duty was imposed with the intention to protect the local industry. The Textile sector is the backbone of the economy and merits special attention. Hence, the tariff structure has been rationalized for synthetic filament yarn to meet the long-standing demand of the sector. Furthermore, in view of the sensitivity of the pharmaceutical sector, more than 30 Active Pharmaceutical Ingredients (API) have been exempted from customs duties.
It is gratifying to witness that almost all the budget proposals seek to strengthening the national economy by taxing the affluent class and providing tangible relief to the weak and vulnerable sections of the society. These budgetary measures proposed by Federal Board of Revenue (FBR) aim at promoting a transparent, effective, and equitable tax system that ensures taxpayers’ facilitation, maximizes tax compliance, and thereby provides ease of doing business in the country.
The writer is a civil servant by profession, a writer by choice and a motivational speaker by passion!