General
Comments on Finance Bill 2024
The Finance Bill 2024 is an unusual document. It has prescribed many correct steps, however, timing for those relevant actions is not appropriate on account of growth and economic sustainability of the country. Some such items include tax on exports and capital gains on listed securities.
The comments are limited to taxes.A document for other aspects will be released tomorrow.
The Pakistan government is trapped in the pressure of IMF viz-a-viz elasticity of the tax environment of Pakistan. The collection has been kept at 12,970 billion which is on the higher side keeping in view the measures introduced and status of the documented sector of economy.
It appears that the budget document has been prepared to fill in the gap, without preparation and homework, as the budget was necessarily required to be passed by June 30, 2024. We do not find any medium and long term plan that is presumably being pursued in this budget. This is the first budget of the new government and it was expected that a policy framework will be given. Nevertheless, it is never too late. Corrective actions are expected in the intervening period before finalisation of the same by the parliament.
From the viewpoint of the tax measures proposed, some of which are very good, it appears that the document is a product under the IMF umbrella with input at second tier level at the Federal Board of Revenue. It is a good paper for practitioners and technicians but this is definitely not sufficient to take Pakistan out of an economic crisis. A country in severe current account crises cannot afford to disturb the export sector which is already stagnant only for the reason that lenders want to bring in horizontal equity. In that process we forget the multiplier effect that would come on employment and industry.
Pakistani businesses are already subject to around 10 % higher tax rate on corporations in the region. The essential corrective measure of abolition of super tax has not been done. When we look at the horizon in front of us then it transpires that all the efforts, done in the past, of bringing Pakistan in line with the region in income tax and VAT rates are spoiled by ‘Babus’ at FBR.
The documented sector of professionals, like Chartered Accountants have been badly damaged. There is no case for a 45% tax rate. Those who pay taxes are being impliedly asked to change their habits. It should not be forgotten that a higher rate of tax in countries like us is a clear recipe for bigger corruption. Our bureaucracy has achieved these objectives by persuading ill prepared politicians to play in their hands with a bigger size of cake in corruption.
Sales tax and petroleum levy adjustment for POL products is not warranted. It is a VAT item and should be handled.
Comments on Finance Bill 2024
Income Tax – Tax on export of goods
Comments on Finance Bill 2024
For over 30 years exports of goods have been subjected to a very low presumptive tax whereby a percentage of foreign exchange proceeds was deemed to be the final discharge of liability for income from the export of goods. These provisions were contained in Section 154 of the Income Tax Ordinance, 2001. Through the Finance Bill 2024 tax deducted on realisation of foreign exchange is proposed to be converted from final discharge of liability to minimum tax. This means that henceforth exports will be taxed at the normal rate of 29% in the case of companies and 45% plus super tax in other cases, if applicable.
It is agreed that exports have to be documented and said income has to be taxed. However, timing and the rate is not appropriate. All businesses adjust their sales according to net after tax income. Those who were paying tax at a very low rate should not have been brought to the highest tax by way of one step. There was a need to have a gradual imposition of tax.
Most important subject in this regard is the tax rate on exports in the region and our competitiveness. In Bangladesh being a competitor at least 50% of the export income is exempt. In India the overall rate is low and there are many incentives for exporters including SEZ. It is expected that this measure will be amended and a graduated rate over a period of five years will be prescribed.
Tax on export of services which includes IT has remained the same.
Capital Gain on sale of listed securities
Capital gain on the sale of listed securities throughout the world is taxed in relation to the holding period. There is always the concept of long and short term capital gains. Pakistan has always adopted this system since the time capital gains were taxed in 2000’s. For the first time in the fiscal history of Pakistan, all kinds of capital gains are proposed to be taxed at the common rate of 15% for all capital gains on securities acquired after July 1, 2024. In the case of a person not being on Active Taxpayers list there will be a minimum rate of not less than 15%. In that case the applicable rate shall be that provided in the First Schedule for individuals and AOP and companies at the rate of 45 and 29 percent respectively before super tax, if applicable.
Comments on Finance Bill 2024
Capital Gain on sale of listed securities
Capital gain on the sale of listed securities throughout the world is taxed in relation to the holding period. There is always the concept of long and short term capital gains. Pakistan has always adopted this system since the time capital gains were taxed in 2000’s. For the first time in the fiscal history of Pakistan, all kinds of capital gains are proposed to be taxed at the common rate of 15% for all capital gains on securities acquired after July 1, 2024. In the case of a person not being on Active Taxpayers list there will be a minimum rate of not less than 15%. In that case the applicable rate shall be that provided in the First Schedule for individuals and AOP and companies at the rate of 45 and 29 percent respectively before super tax, if applicable.
Capital gain on sale of immovable property
Capital gain on the sale of immovable property has been taxed by the Federal Government after the 18th Amendment to the Constitution at various rates according to the holding period of such property. Through Finance Bill 2024 this system is proposed to be changed and all capital gains on the disposal of immovable property acquired after July 1, 2024 are proposed
12 June 2024 3
to be subject to tax at the rate of 15% of the amount of gain. In the case of a person not being on Active Taxpayers list there will be a minimum rate of not less than 15%. The applicable rate shall be that provided in the First Schedule for individuals and AOP and companies at the rate of 45 and 29 percent respectively before super tax, if applicable.
Tax rate on non-salaried income
Tax rates on non-salaried income have been substantially increased. Now the maximum rate has been placed at 45% before super tax, if applicable. This is a very high rate of tax.
There is a logic for the said higher rate as the rate of tax for non-corporate income after super tax should be higher than the corporate tax rate including tax on dividends..
However, the increase as proposed in the Finance Bill 2024 is abrupt and undesired. Super tax should have been withdrawn if there had been this tax. This is a big blow to documented professionals etc.
Disallowance of payment to associates for brands, logo etc
A new provision has been inserted whereby payments to associates on account of use of brand , logo etc will be disallowed to the extent of 25%. There was no such provision in the past. The placement of the section is not correct. This provision effectively appears to be applicable to two preceding years from the tax year 2024. Retrospective effect is a subject to be examined.
Tax rate for salaried person
Tax rates for salaried persons have substantially remained the same. The threshold has been kept at Rs. 600,000, however, income above Rs 600,000 which was earlier taxed at the rate of 2.5 % is now taxable at the rate of 5%. Similarly rates applicable with various slabs have been increased which will effectively increase the tax on salaries above Rs 600,000. Nevertheless, the maximum rate of 35% before super tax, if applicable,has been maintained.
Withholding Tax on Sale of Unlisted Companies
Through Finance Act 2023 sub-sections (6) to (10) were inserted with respect to withholding tax provisions relating to capital gain arising on sale of shares (both for Pakistani and foreign companies). Rules for that purpose are laid down in Rule 19H of the Income Tax Rules 2002. The Finance Bill 2024 proposes two amendments in these provisions. Firstly the word ‘payable’ has been inserted for determining the incidence of tax withholding provision. This means that liability will arise whenever the binding contract is made whether or not payment has been made. This is an unusual requirement with respect to withholding provisions. Secondly it has been proposed that withholding provision will also trigger when such shares are registered with the Securities & Exchange Commission of Pakistan or the State Bank of Pakistan whichever is earlier.
Comments on Finance Bill 2024
Losses of PIA
Losses of PIA from 2017 are proposed to be carried forward for a period of 10 years instead of 6 years.
Tax Credit for Thar Coal
The tax credit for That Coal under Section 65F proposed to be available only to income from coal mining projects supplying coal to power generation projects.
Exempt Income of AOP
The income of AOP which is exempt from tax under Section 92 of the Ordinance is proposed to be available only when the financial statements have been audited by Chartered Accountants or Chartered Management Accountant and a return has been filed.
Tenth Schedule
Tenth Schedule which is a prohibitive provision relating to persons who do file the return is proposed to be applicable to the persons who do not file return by the due date or the extended date.
Restriction on foreign travel
The Federal Government has been empowered to stop travel outside Pakistan for persons who were required to file the return of income however the same has not been filed. This provision will however not be applicable for persons having NICOP, students, minors and such other classes as the FBR may prescribe.
Collection of Tax at Import Stage
Under the Income Tax Ordinance, 2001 there was no right of the income tax department to change the value of imported goods for the purposes of determining tax required to be collected at the import stage. Now it is proposed that such a right can be enforced by the tax department. This will handle under invoicing cases. Furthermore a concept of minimum value has been prescribed.
Payments to Non-residents
The Commissioner of Income Tax in certain specified cases is entitled to give a ‘’NIL’ or reduced rate certificate to a person making payment to a non-resident if the respective conditions have been fulfilled. A strange amendment has been made whereby the words ‘without deduction of tax’ are proposed to be replaced by the word ‘with’. This means that in no circumstances a ‘Nil’ withholding certificate can be made; however a Commissioner may
issue a withholding certificate with a .0005 % rate. This incorrect and illogical amendment is required to be withdrawn.
Payment for Goods, Services rendered and contracts executed, etc
Presently the Commissioner of Income Tax was allowed to issue a ‘Nil’ withholding certificate in cases where conditions under the law are complied. The concept of ‘Nil’ withholding is being dispensed with. Now it is proposed that only a reduced rate certificate can be issued. Such rate may be .0005 %. This incorrect and illogical provision should be withdrawn.
Wealth Statement
In the provisions relating to Wealth Statement it is proposed that the term ‘assets’ shall include foreign assets. This is a wrong insertion as foreign assets are already included and the statement of foreign assets under 116A is only an Annexure to the main statement. This insertion will justify the wrong statement filed earlier where foreign assets were not included. It has to be withdrawn.
Advance Tax by distributors and dealers
At present supply of following products is subject to collection of advance tax by the manufacturer, commercial importer, distributor, dealer and wholesaler as the case may be:
- Pharmaceuticals
- Poultry
- Animal Feed
- Edible Oil and Ghee
- Auto parts
- Tyres
- Varnishes
- Chemicals
- Cosmetics
- IT Equipment
- Electronics
- Sugar
- Cement
- Iron & Steel Products
- Fertiliser
- Motor Cycles
- Pesticides
- Cigarettes
- Glass
- Textile
- Beverages
- Paint, or
- Foam
This law is governed by Section 236G and 236H of the Ordinance. Now it is proposed that all supplies will be subject to collection of advance tax by the respective manufacturer, distributor, dealer or the wholesaler as the case may be. The general rate is 1% and .05% for others and retailers respectively.
This is an excellent step. However, in practice it is counter productive as most of the dealers, distributors, wholesalers and retailers are not registered and the advance tax becomes the cost of the manufacturers etc .
Income of Persons in Tribal Area
The exemption from tax and withholding provisions which is expiring on June 30, 2024 is proposed to be extended to June 30, 2025.
Rate of Tax on distribution of cigarettes
The present rate of tax deduction at source is proposed to be increased from 1% to 2.5%.
Reduction in tax rate for full time teachers
There is a reduction in the rate of tax for a full time teacher. It is proposed to be withdrawn.
Non-performing Loans in Banking Companies
It is proposed that any non-performing loan so classified in the financial statement of a banking company subject to tax under the Seventh Schedule as per IFRS 09 shall not be treated as an allowable expense. There is no need for this provision.
This provision is in contradiction with the primary concept of the Seventh Schedule where financial statements as furnished to the State Bank of Pakistan form the basis of determining the tax liability. Furthermore there is adequate safeguard in other provisions of the Seventh Schedule to this effect.
There is no need to disturb the main theme of the Seventh Schedule where the financial accounts of the bank form the basis of determining the tax liability.
Furthermore the proposed insertion that only the amount treated as loss shall be allowed as deduction is again, against the primary theme of the Seventh Schedule and is apparently in contradiction of present rules.
Tenth Schedule
Tenth Schedule is a prescription of prohibitive rate of collection/ withholding in cases where the person is not in the active taxpayers list. Substantial changes are proposed in this schedule.
| Rate of Tax on acquisition of Property to be paid by the purchaser and collected by the registration authorities | ||
| Market value does not exceed Rs 50 million | 12% | |
| From 50 to 100 million | 16% | |
| Exceeds 100 million | 20% | |
| Profit on Debt Section 151 | 35% | |
| Advance Tax on sale or transfer of immovable property | 10% | |
| Advance on sale to distributor, dealers and wholesalers, other than sale of fertiliser | 2% | |
| Advance tax on sales to retailers | 2.5% | |
| Tax on persons who are on active taxpayers list but have not filed the return of income by the due date or extended due date | ||
| Advance tax on sale of immovable property | ||
| Market value does not exceed 50 million | 6% | |
| 50 to 100 million | 7% | |
| Above 100 million | 8% | |
| Advance tax on purchase of |
| immovable property | ||
| Market value does not exceed 50 million | 6% | |
| 50 to 100 million | 7% | |
| Exceeds 100 million | 8% |
Comments on Finance Bill 2024
Federal Excise Act
Federal Excise duty at the rate of 5% is proposed to be imposed on allotment or transfer of commercial property and first allotment or transfer of residential property in such mode and manner and subject to such conditions and restrictions as may be prescribed by the Board.
Under the Federal Excise Act 2005 excise duty can be levied on any item provided in the First Schedule to the Federal Excise Act,2005. This provision has been used for the levy of excise duty on property as referred above. However an immovable property is a subject having a special connotation under the Federal Legislative List. Therefore it would have to be constitutionally decided whether or not any excise duty can be levied on immovable property.
An excise duty has been proposed on supply of sugar to any manufacturer Rs 15 per kg.
Sales Tax
Sales Tax on Advances
Sales tax incidence arises at the time of supply. Advances received as not subject to sales tax. In that past, prior to amendment in the law made by the Finance Act, 2007, such advances were treated as supplies which were subsequently deleted. Now it is again proposed that sales tax incidence will be there at the time of receipt of advances. This is a wrong law and the proposal is required to be withdrawn.
Sales Tax on Retail Price
DAP fertiliser shall be subject to tax under the Third Schedule which is retail price
Fifth Schedule
Zero rating of sales tax is proposed to be finished on the following products
a. Infants products and writing equipments etc (Entry 12)
- Milk (PCT 04.01) (Entry 16)
- Milk (PCT 04.01) (Entry 16)
- Fat Filled Milk (PCT 1901.9090) (Entry 17)
- Plant and Machinery for Exporter etc (Entry 21)
Comments on Finance Bill 2024
Zero rating for import by Charitable Hospital shall not be zero rated.
Comments on Finance Bill 2024
Exemption from sales tax
Exemption from sales tax on import or supplies have been withdrawn for the following items however some items have been placed under the reduced rate.
| Description | Entry in the Sixth Schedule | New rate |
| a. Edible vegetable from Afghanistan | 13 | |
| a. Fruits imported from Afghanistan excluding apples | 15 | |
| b. Newsprint and books but excluding brochure leaflet and directories | 32 | 10% |
| c. Colours in sets | 86 | 10% |
| d. Writing, drawing and making inks | 87 | 10% |
| e. Erasers | 88 | 10% |
| f. Exercise books | 89 | 10% |
| g. Pencil sharpener | 90 | 10% |
| h. Other drawing instruments etc | 96 | 10% |
| i. Pens etc | 97 | 10% |
| j. Pencil including colour pencils | 98 | 10% |
| k. Medical equipments (all kinds) | 112 | |
| l. Medical equipment diagnostics etc | 120 | |
| m. Supplies of machinery in Tribal areas | 151 | 6% till June 30, 2025 and afterwards 12% to June 30, 2026 |
| n. Supplies of electricity to Tribal areas etc | 152 | 6% till June 30, 2025 and afterwards 12% to June |
| 30, 2026 | ||
| o. Goods excluding electricity and natural gas supplied to hospital run by charitable hospitals of 50 beds or more | 166 | |
| p. Oil cakes and other solid residues | 169 | 10% |
| q. Tractors | 170 | 10% |
| r. Machinery and equipment imported under special concessionary regime | 174 |
On Local Supplies
Exemption from tax on local supplies has been omitted and a new rate has been prescribed.
- Vermicularis, sheemal, bun etc (10% new rate proposed)
- Poultry feed, cattle feed, sunflower seed meal, rapeseed meal and canola seed meal (10%)
New Exemption on imports and local supplies
| Description | Reference |
| a. Imports of goods received in the event of national disaster etc from a foreign government | 175 |
| b. POL Products | 176 |
| MS Petrol High Speed Diesel Oil 3. Kerosene 4. Light Diesel Oil |
- Milk except branded (see zero rating proposal also)
- Iron and steel scrap
Local supplies
Sales Tax at a special rate Eight Schedule
Following items are now proposed to be subject to general rate of sales tax
- LPG Rate at present is 10
- Integrated retailer Rate at present is 15
- Locally manufactured by hybrid vehicles
Imported personal computers and laptop computers, note books whether or not incorporating multimedia kit is subject to sales tax at the rate of 5% to 10 %
Pharmaceuticals
Substances registered as drugs under the Drugs Act, 1976 (XXXI of 1976) and medicaments as are classifiable under chapter 30 of the First Schedule to the Customs Act, 1969 (IV of 1969) except the following, even if medicated or medicinal in nature, namely:- (a) filled infusion solution bags imported with or without infusion given sets; (b) scrubs, detergents and washing preparations; (c) soft soap or no soap; (d) adhesive plaster; (e) surgical tapes; (f) liquid paraffin; (g) disinfectants, and (h) cosmetics and have been made from the 1st day of July, 2022 are subject to sales tax at the rate of 1% without any input tax.
It is proposed that henceforth the reduced rate and special system will be applicable only for ‘Substances registered as drugs under the Drugs Act, 1976 (XXXI of 1976)’. Other items are now subject to full rate of tax.
Special manner of collection of Sales Tax on Cellular Phones in CKD/CBU
Cellular Mobile phones or satellite phones to be charged on the basis of import value per set, or equivalent value in rupees in case of supply by the manufacturer at the rate as indicated against each category:
| Description | Sales tax on CBU at the time of import or registration / IMEI number or CMOs | Sales Tax on imports in CKD / SKD condition | Sales tax on locally manufactured in CBU condition in addition to tax under column (4) |
| a. Not exceeding USD 500 | 18% ad valorem | 18% ad valorem | 18% ad valorem |
| b. Exceeding USD 500 | 25% ad valorem | 18 ad valorem | 18% ad valorem |
Collection of Sales Tax by the buyer
Under the Eleventh Schedule registered persons are required to collect tax from the supplier of certain goods, mostly raw material and deposit it to the government.
| Withholding Agent | Supplier Category | % of Sales tax |
| a. Registered Person | Lead for battery | 75 to 80 percent |
| b. Registered person manufacturing cement | Supplying gypsum under chapter 25 or limestone flux under chapter 25 | 0 to 80% |
| c. Registered person | Person supplying any kind of coal under Chapter 27 | 0 to 80% |
| d. Registered person | Person supplying any kind of waste of paper and paper board | 0 to 80% |
| e. Registered person | Person supplying any kind of plastic waste | 0 to 80% |
| f. Registered | Person supplying any kind of crushed stone and silica | 0 to 80 % |
At the moment this schedule is subject to the condition that supplies are made by an Active Taxpayer as defined in the Sales Tax Act, 1990 to other registered persons with exception of advertisement services. This clause is proposed to be substituted by the following:
‘Supplies made an active tax payer as defined in the Sales Tax Act 1990 to another registered with the exception of supplies referred to in serial number
- Advertisement services
- Supplier of lead to battery manufacturers
- Supplies of gypsum and limestone flux
- Coal;
- Waste of paper and paper board
- Plastic waste
- Crushed stone and silica’
This is a correct amendment as many Active Taxpayers were not depositing sales tax collected by them from the manufacturers.
Petroleum Levy
Sales tax on POL products has been withdrawn and levy has been proposed on the POL products under The Petroleum Products (Petroleum Levy) Ordinance, 1961 as under:
| Petroleum Products | Unit | Minimum Petroleum levy rate (in rupees per unit) | Maximum Petroleum levy rate (in rupees per unit) |
| High speed diesel oil (HSDO) | Litre | Rs 60 | Rs 80 |
| Motor gasoline | Litre | Rs 60 | Rs 80- |
| Superior Kerosene Oil (SKO) | Litre | Rs 50 | Rs 50 |
| Light Diesel Oil (LDO) | Litre | Rs 50 | Rs 75 |
| Hi Octane Blending component (HOBC) | Litre | Rs 50 | Rs 75 |
| E-10 Gasolene | Litre | Rs 50 | Rs 75 |
| Liquified Petroleum Gas (produced / extracted in Pakistan) | Metric ton | Rs 30,000 | Rs 30,000 |
This is not a correct measure for the reason that in this manner the buyers will not be eligible to claim input tax unless specifically allowed. Furthermore, there will be issues with respect to allocation of proceeds to provinces under NFC. This is a VAT and is required to be a part of the overall VAT system.
This article is drafted from the Orignial PDF file shared by Syed Mohammad Shabbar Zaidi is a Pakistani chartered accountant who served as the 26th Chairman of Federal Board of Revenue of Pakistan from May 2019 till April 2020
Economy.pk is just sharing the text from the pdf and we have no say in it, its just an opinion
This article is drafted from the original PDF file shared by Syed Mohammad Shabbar Zaidi, a Pakistani chartered accountant who served as the 26th Chairman of the Federal Board of Revenue of Pakistan from May 2019 until April 2020.
Economy.pk is simply sharing the text from the PDF and does not endorse or take any stance on the opinions expressed within it.
