Federal Budget 2022-23: Snapshot of Income and Sales Tax

The Federal Government presented the proposed budget for the fiscal year 2022-23 in the National Assembly on Friday, June 10, 2022. Federal Minister for Finance and Revenue, Mr. Miftah Ismail presented the budget along with Finance Bill 2022. PML (N) led coalition government has taken some tough structural measures. According to the Minister of Finance and Revenue, the Economic stability of Pakistan is the foremost priority. He also said we need to set a strong foundation of economic development that is based on sustainable growth.

Salient features of the Finance Bill 2022 are as follows:

Income Tax

• Minimum taxable limit for Salaried Individuals proposed to be increased from Rs. 600,000 to Rs. 1,200,000.  Tax impact on salaried individuals is mostly favorable and only the individuals drawing monthly salary in excess of Rs. 1.5 million (Rs. 18 million p.a.) will be impacted unfavorably.

• Minimum taxable limit of Business Individuals and AOPs proposed to be increased from Rs. 400,000 to Rs. 600,000. The amendment will increase the tax impact for businesses having annual taxable income in excess of Rs. 1.2 million.

• Maximum tax on Profit from Behbood Certificates reduced from 10% to 5%.

• A ‘Final Tax’ of Rs. 3,000 to Rs. 10,000 to be collected from Small Retailers via electricity bills.

• Resident Person having more than one immovable property worth more than Rs. 25 million to be taxed at 1% of Fair Market Value as Deemed Rental Income.

• Capital Gain on Immovable Properties to be taxed at 15% for properties disposed of within one year. Rates to be reduced progressively for each year of holding. No capital gain where holding period exceeds 2 – 6 years depending on type of property.

• Tax rate on Gain on Disposal of Capital Assets to be charged ranging from 2.5% to 15% depending on holding period. No tax applicable after 6 years.

• Advance Tax on Sale of Property increased from 1% to 2% for filers and 2% to 5% for non-filers.

• Advance Tax on Purchase of Property for non-filers increased from 2% to 3.5%.

• Persons including Companies and AOPs earning income of more than Rs. 300 million to be levied an additional 2% Poverty Alleviation Tax.

• Advance tax to be increased on Motor Vehicle of 1600 cc and above. Rate of additional advance tax on non-filers to be increased from 100% to 200%.

• Withholding tax on international transactions via Debit / Credit Cards to be levied at 1% for filers and 2% for non-filers.

• Effective Tax Rate on Banking Companies increased to 45% from 39% (including 4% Super Tax).

• Scope of definition of Resident enhanced to include those Pakistanis who are not tax resident of any other country.

• Tax Credits / Allowances on Health Insurance Premium, Investment in shares, mutual funds and Voluntary Pension Funds, and Profit on Debt proposed to be withdrawn.

• Tax Credit for IT Export Services is proposed to be withdrawn and 0.25% tax to be levied on export proceeds.

• Companies and AOPs required to file and update particulars of their beneficial owners.

Sales Tax

• Sales Tax proposed to be Exempted on the following:

• Imported and local supplies of Solar Panels.
• Goods excluding electricity and gas supplied to Non-profit and welfare hospitals having 50 beds or more.
• Agricultural Machinery and Seeds.

• Further Tax to be charged on persons not appearing in Active Taxpayer List.

• Mandatory requirement for obtaining CNIC from Buyer is proposed to be withdrawn.

• Jewelers are now proposed to be included as Tier-1 retailers.

• Listed companies are now proposed to adjust input tax not more than 90% of the output tax.

For further information regarding the budget 2022-2023, stay tuned with us. If you have any query regarding the budget and/or taxes, then you can feel free to contact us.