Introduction
Pakistan has started its new fiscal year with the Finance Act 2024, which became effective on July 1, 2024. This Act includes several amendments that differ from those proposed in the Finance Bill 2024.
Purpose of the Act
Many people are questioning whether the Finance Act 2024 is just a tool to meet revenue targets for lenders or if it includes measures to benefit the citizens of Pakistan.
Taxpayer Concerns
Taxpayers are curious about the government’s efforts to expand the tax base. They want to know if the government is still targeting existing taxpayers while those in the informal sector remain untaxed.
Impact on Businesses
Businesses are eager to see if the tax reliefs and policies announced by the previous government are being upheld by the current government or if there have been significant changes that might affect their operations and investments.
New Taxes and Revenue Targets
The government has set a total revenue target of Rs17.815 trillion for the fiscal year 2024-25, which is a 46% increase from the revised target of Rs12.199 trillion for FY24. This includes a tax revenue target of Rs12.970 trillion and a non-tax revenue target of Rs4.845 trillion, representing year-on-year increases of 40% and 64%, respectively.
Government Spending and Fiscal Deficit
A significant portion of the revenue, Rs9.775 trillion, will go towards interest payments, and Rs7.438 trillion will be allocated to the provinces, leaving the federal government with only Rs602 billion. This means additional financing will be needed for defence, pensions, and other expenses. The overall fiscal deficit is projected to be Rs7.283 trillion, or 5.87% of GDP.
Changes in Tax Rates
The Act introduces higher tax rates for individuals and the Association of Persons, with a maximum rate of 45% for non-salaried individuals and 35% for salaried individuals, plus a new 10% surcharge on income tax.
Impact on Exporters
Exporters of goods will no longer be under the final tax regime and will face higher or normal tax rates, plus an additional advance tax of 1%.
Introduction of ‘Late Filers’
A new category of taxpayers, ‘late filers’, has been introduced. These are individuals who file their tax returns after the due dates and will face different tax rates compared to active taxpayers.
Revenue Measures
The Finance Act 2024 includes measures such as a flat tax rate on capital gains from securities and immovable properties acquired after July 1, 2024. The tax rate on dividends from mutual funds with significant income from debt has also increased from 15% to 25%.
Sales Tax and Federal Excise Act Changes
The Sales Tax Act 1990 and the Federal Excise Act 2005 have also been amended. Items that previously enjoyed zero-rating or exemptions now face reduced or standard sales tax rates.
Policy Inconsistencies
There are concerns about policy inconsistencies, such as changes in tax rates for retail outlets that integrated real-time sales reporting with the Federal Board of Revenue. Initially, they enjoyed reduced rates, but now they are subject to standard rates, which undermines trust in government policies.
