The government has announced a number of changes to the prevailing tax regime, going for the populist approach and putting money back in people's pockets as it gears up for the upcoming elections.
Increase in minimum threshold of tax deduction
Under the existing law, tax is required to be deducted on payment for services exceeding Rs10,000 and on goods exceeding Rs25,000. The government has proposed that the threshold for tax deduction be tripled for both to Rs30,000 on payment for services and to Rs75,000 on payment for goods.
According to the tax amnesty scheme announced earlier this month, the finance minister today said those with annual income below Rs1.2m will pay no income tax from the coming fiscal year.
However, he skipped over a part of his speech, uploaded on the finance ministry's website, which mentioned a Rs1,000 per year "nominal tax" to be imposed on those earning between Rs0.4m and Rs0.8m per annum, and Rs2,000 on those earning between Rs0.8m and Rs1.2m.
This "nominal tax", the budget speech document says, will ensure that they are not wiped off the tax net.
According to details released earlier, a 5pc tax would be payable by those earning between Rs1.2m and 2.4m per annum; 10pc tax to be paid by those with annual income between Rs2.4m and 4.8m; and those earning more than this would pay 15pc as income tax.
The government expects that a large number of people will benefit from the scheme and enter the tax net. However, Ismail also announced a number of measures the government will take if people continue to evade taxes.
"New initiatives in data-mining are being initiated to identify individuals who, despite earning taxable income, are not paying their due share in taxes. Government will now monitor potential taxpayers’ financial records and issue notices on evidence of tax evasion," Ismail warned.
Non-filers to face the axe
Although the government plans on making life for non-filers difficult, Finance Minister Miftah Ismail announced that the rate of withholding tax charged on banking transactions would be cut from 0.6pc to 0.4pc. The tax, when imposed by Ismail's predecessor Ishaq Dar, had faced a lot of criticism.
"The withholding tax rates on sale of goods for non-filers are proposed to be increased from existing 7pc to 8pc in the case of a company, and from existing 7.75pc to 9pc in non-corporate cases," he said.
Non-filers will also be unable to make any cash deposits to their foreign currency accounts. The FBR will also not question any foreign funds inflow of up to $100,000 per year per person.
Govt can buy back undervalued property within six months of registration
If the budget is approved, the federal government will be able to buy any land or property for double its declared value within six months of the property's registration. The move is aimed at curbing the practice of undervaluation of the property, mostly relying in the DC rates.
The provinces have also been advised by the federal government to abolish DC rates while the federal government will itself abolish the FBR rates on property.
Filers will be able to register property after paying a maximum 1pc of the property's value.
Non-filers will be unable to buy property valued over Rs4m.
Corporate taxes slashed
Miftah Ismail on Friday announced a plan for a gradual retirement of the super tax — currently charged at 4pc to banking companies and 3pc to non-banking companies having income greater than Rs500 million.
It will be wound down by 1 percentage point every year, reaching an eventual end for banking companies in three years and in four years for non-banking companies.
The super tax had initially been introduced to finance the rehabilitation of internally displaced persons.
Similarly, the corporate tax will be reduced by 1pc each year to 25pc by 2023 from the current 30pc, the finance minister said.
The tax on undistributed profits will also be decreased from 7.5pc to 5pc; however, it will now apply if at least 20pc of profits are not distributed within six months of the end of the year, compared to 40pc before.