ISLAMABAD:
Four days ahead of the approval for Rs435 billion worth of tax measures announced in the budget, the government on Sunday proposed a Rs36 billion mini-budget and eased restrictions on major purchases by individuals with insufficient declared assets.
The revised criteria aim to address public concerns about the negative impact of the earlier blanket ban on economic activity by ineligible persons.
With the introduction of a mini-budget before the planned approval of 2025-26 budget on Thursday, the government has imposed total new taxes worth Rs462 billion. New taxes have been imposed on one-day old chicken and rates have been increased on companies’ investment in mutual funds and earnings from investment in government debt.
The government has also agreed to relax the criteria for banning the economic transactions such as buying a home, plot, car, investing in securities and maintaining a bank account by those whose declared assets do not support these purchases. It had proposed to ban all such transactions if the declared assets do not support these purchases.
The government has now proposed that ineligibility criteria will not apply if the value of a car is up to Rs7 million. The ineligibility criterion would apply on purchase of over Rs100 million commercial plot and over Rs50 million residential property.
The ineligibility condition will be applicable if the cash in the bank account is more than Rs100 million per annum in all bank accounts of one individual. The ineligibility condition on stock market investment would be applicable, if the cumulative investment in a year is more than Rs50 million.
These limits have been set on the assumption that Pakistan’s 5% richest evade taxes and the rest of the 95% do not have economic muscles for making major investments.
The new tax measures were tabled before the National Assembly Standing Committee on Finance, which endorsed the government’s proposals. PPP’s Syed Naveed Qamar chaired the committee meeting.
The Federal Board of Revenue has proposed the Rs36 billion measures in lieu of reduction in proposed sales tax rate on import of solar panel from 18% to 10% and funding an increase in salaries of the government employees to 10%.
In a move that will further increase the prices of chicken in the country, the government has proposed to slap federal excise duty equal to Rs10 on a one-day old chicken. It has proposed amendments in the Federal Excise Act, 2005 to introduce the new levy.
Last month, the International Monetary Fund (IMF) had turned down the government’s proposal to introduce a 5% federal excise duty on one-day-old chicks. The IMF representative had pointed out that, on one hand, the FBR claimed there were high taxes on food in Pakistan, and on the other hand, it recommended such proposals.
Chairman FBR Rashid Langrial told the standing committee that the new taxation measures of Rs36 billion were aimed at compensating the fiscal shortfall due to reduction in sales tax rate for the solar panels and funding the increase in the salaries.
The National Assembly Standing Committee proceedings mostly remained smooth. Syed Naveed Qamar, Rashid Langrial and newly appointed Minister of State for Finance Bilal Kayani steered the committee in the presence of powerful opposition. It was for the first time that NA standing committee discussed and approved the budget.
The PTI’s two Members of the National Assembly Arif Mobeen Jutt and Usama Mela played very constructive role in scrutiny of the tax measures, which was also acknowledged by the Finance Minister Muhammad Aurangzeb.
In the budget, the government had announced 18% sales tax on import of solar panels. After reaching an understanding with the Pakistan Peoples Party, Deputy Prime Minister Ishaq Dar announced to reduce the rate to 10%. The total estimated revenue from the 18% tax was Rs20 billion, which is now projected at Rs12 billion.
Likewise, the FBR and the IMF had agreed to reduce the income tax rate for Rs100,000 monthly salary income from 5% to 1%. The finance ministry had also proposed 6% increase in salaries. Prime Minister Shehbaz Sharif decided to increase salaries to 10% in the cabinet meeting held an hour before the announcement of the budget.
The prime minister also decided in the same cabinet meeting that to fund the additional increase in the salary, the tax on the lowest slab should be increased to 2.5%.
Secretary Finance Imdadullah Bosal had opposed to increase this tax to 2.5%. Now, the income tax rate for the lowest income slab of Rs100,000 will be 1% and to fund the salary increase, the government has taken three measures.
The National Assembly Standing Committee on Finance also agreed to increase the income tax rate from 25% to 29% on dividends received by a company from mutual funds deriving income from profit on debt.
It has also proposed to increase withholding tax from 15 to 20% on profit on investment in the government securities by institutional investors.
Finance Minister Muhammad Aurangzeb had announced Rs435 billion new measures in the budget, including introducing Rs2.5 per liter carbon levy and up to 3% car engine levy. Out of the Rs435 billion, the FBR related tax measures were Rs312 billion.
After adjusting negative impact of solar panel tax, cumulatively, the government has imposed Rs462 billion worth new tax measures in the budget. It has set the FBR’s annual tax target at Rs14.13 trillion for the next fiscal year, which can be achieved on back of these measures and the promised enforcement by the FBR.
Currently, there is 15% income tax in the case of mutual funds, Real Estate Investment Trusts. It has now been decided that there will be 15% income tax in the case of Real Estate Investment Trust, 25% in case of mutual Funds, contingent upon proportional income derived from average annual investments in debt securities and equities respectively and 29% income tax on dividend received by a company from mutual fund deriving income from profit on debt.
Likewise, there will be 20% tax on the yield or profit paid by a banking company or financial institution on an account or deposit maintained with such company or institution; and 20% of the yield or profit on the government securities paid to any person other than an individual.
The National Assembly Standing Committee on Finance also approved Finance Bill 2025-26 with certain recommendations, forwarded by the Senate Standing Committee on Finance as well as recommendations of the NA Finance committee.
The FBR chairman said that the government had shared six new taxation measures with the IMF. Out of these six measures, three have been approved by the IMF.
The government has also decided that a uniform sales tax rate of 10% would be imposed on imported and local cotton aimed at addressing an anomaly that was creating problems for the local industry.
