Important Highlights of Federal Budget 2023-2024

The Finance Bill 2023 (Important highlights of Federal Budget 2023-2024) did not bring any substantial change in the tax policy as all major revenue measures are aimed to tax already taxed sectors. Big businesses are subjected to higher rates of taxes with multiple taxation incidence. No serious amendments are made to reduce the tax gap attributable to undocumented sectors.

All the amendments through this finance Bill shall become applicable w.e.f. July 01, 2023. Following are the Salient Features of Budget 2023-2024.

All the amendments through this finance Bill shall become applicable w.e.f. July 01, 2023

Proposed Changes in Income Tax Ordinance, 2001

Super Tax On High Earning Persons:

• History: This levy was imposed last year through Finance Act, 2022 and maximum rate of super tax for taxpayers having taxable income above Rs.300 million was 4% and on some special industries including beverages rate of super tax was 10% for Tax Year 2022 only. The litigation on this super tax levy is currently pending in Lahore High Court and Supreme Court of Pakistan against SHC decision.
• Now it is proposed to increase maximum rate of Super Tax and following new rates will be applicable for Tax Year 2023 [F.Y.2022] and onwards:
  • Taxable Income between Rs. 350 to 400 million                      6%
  • Taxable Income between Rs. 400 to 500 million                      8%
  • Taxable Income above Rs. 500 million                                          10%

Tax on Bonus Shares

• WHT tax @10% will be deducted by companies issuing bonus shares to shareholders. This tax shall be final tax on income of shareholders.
• The value of bonus shares shall be treated as ‘Other Income’.

Tax on Unexpected Income due to ‘Economic Factor

• It is proposed to levy income tax earned by the taxpayer(s) due to any ‘economic factor’ resulted in unexpected income, profits or gains. And that whether or not such unexpected income is disclosed in the financial statements.
• Applicable on any of the preceding five (5) years from Tax Year 2023 and onwards.
• This ‘economic factor’ includes international price fluctuation or any difference in income on account of foreign currency fluctuation.
• Tax amount shall not exceed 50% of such unexpected income.
• Federal Government may through any notification (SRO) determine the ‘economic factor’.

Tax Free Foreign Remittances:

• Currently, the threshold for free of tax foreign remittances is Rs.5 million.
• Now it is proposed to increase 100,000 USD i.e. Rs.30 million approximately.

WHT on Cash Withdrawal From Banks by Non-Filers:

• It is proposed to again levy 0.6% withholding income tax from cash withdrawals of banks.
• The threshold is amount exceeding Rs. 50,000 in a single day.

Exemption of WHT on Purchase of Property in Pakistan by Foreign Pakistanis:

• Currently, 2% advance tax is applicable for purchase of property in Pakistan by Filer and 7% advance income tax for non-filers.
• It is proposed to exempt this tax on foreign national Pakistanis ‘Buyer or Seller’ subject to such transaction is executed through Foreign Currency Bank Account or NRP Rupee Value account maintained with authorized banks in Pakistan.

Withholding Income Tax Rates Increased (on Supply of goods, Services, Contracts and Credit cards).

• Supplies                                   For company 4% to 5%                  and Non-company 4.5% to 5.5%
• Other Services                      For company 8% to 9%                  and Non-company 10% to 11%
• Contracts                                For company 6.5% to 7.5%          and Non-company 7% to 8%
• Special Services                                                    3% to 4%
• Credit Cards Foreign Payments                     1% to 5%

Small and Medium Enterprises (SME) Registration:

• Applicable tax rate on SME is 20% of Taxable income, if the annual sales turnover does not exceed Rs.800 million.
• All such taxpayers are required to register with FBR portal and SME Enterprise Development Authority.
• IT enabled SMEs are required to register with Pakistan Software Export Board also.

Tax Credits For New House Construction:

• 10% of Tax Assessed or One Million rupees will be allowed to individual taxpayers for Tax Years 2024, 2025 and 2026.
• Condition imposed is that new house should be completed during the Tax Year and its completion certificate shall be attached with annual income tax return.
• The layout plan of such residential house is approved by concerned authority on or after July 01, 2023.

Proposed Changes in Sales Tax Act, 1990

• Jewelers are excluded from the category of Ter-1 Retailer.
• The condition of shop size of 1000 sqft is eliminated from the definition of Tier-1 Retailer.
• Rate of sales tax is increased for integrated retail outlets from 12% to 15%. Proposed Changes in Federal Excise Act, 2005
• FED is levied on energy efficient fans either locally manufactured or imported of Rs.2,000 per fan.
• FED is levied on Incandescent Bulbs either locally manufactured or imported @20% of value of supply.
• FED is again levied on Franchise Services, royalty and fee for technical services @10% of the charge.