Quick Glance at Major Changes
The government is projecting GDP to grow by 4% in the coming fiscal year, despite the fact that the economy missed almost all major targets that were defined during the FY19. For instance, GDP grew by 3.3% against a target of 6.3%. Similarly, the fiscal deficit for the FY19 is expected to reach 7% compared to a target of 5%.
The incumbent government has implemented significant economic stabilization measures which has resulted in achieving some success in assisting economy to progress towards stability and growth. For instance, as a result of tight fiscal and monetary policy the current account deficit narrowed to approximately 4% in the FY19 compared to 6.1 % in the FY18.
Below are some major changes proposed in the federal budget 2019 – 2020:
Proposed Measures to Increase Revenue:
- The concept of ‘filer’ and non-filer’ proposed to be completely abolished from the Income Tax Ordinance, 2001
- Tenth Schedule proposed to be inserted to provide complete framework for dealing with persons not appearing in the Active Taxpayers’ List including rates of deduction / collection of tax, filing of returns, assessments etc. in order to forcefully bring them in the tax net.
- Purchase of immoveable property having fair market value of five million rupees or more and any other asset having fair market value of one million rupees or more, required to be transacted through banking channel.
- Major shift in taxation of gain on sale of immovable properties proposed.
- For open plots of land, if the holding period exceeds 1 year and does not exceed 10 years, the gain chargeable to tax will be reduced by 25% and taxed at normal rate. After 10 years, any capital gain will be exempt.
- For constructed property if the holding period exceeds 1 year and does not exceed 5 years, the gain chargeable to tax will be reduced by 25% and taxed at normal rate. After 5 years, any capital gain will be exempt.
- Minimum taxable income threshold reduced from PKR1.2mn p.a to PKR600k p.a for salaried and PKR 400k for non-salaried individuals.
- The bill has proposed that an individual will be considered a resident in Pakistan if the stay in Pakistan is for 90 days or more, instead of 183 days or more in any one tax year and in aggregate 365 days in four preceding years.
- Gifts other than those received from grandparents, parents, spouse, real brother, real sister, son or a daughter will be subject to taxation.
- The threshold for exempt foreign remittances received under section 111(4) proposed to be reduced to five million rupees in a tax year from the present threshold of ten million rupees.
- The Bill has proposed amendments aimed to bring a substantial shift with respect to taxation of following income, whereby the tax collected / paid on such income is to be treated as minimum tax instead of final tax–
- Income arising from commercial imports
- Income from profit on debt (other than a company
- Income arising to a non-resident person on account of certain contracts and services
- Income arising from supply of goods
- Income from execution of contracts except for a contract in respect of a sportsperson
- Commission income
- Income of CNG Stations
- Restoration of Normal Tax Regime and 17% FED for Steel Sector on billets, ingots, bars, ship plates etc.
- The Bill proposes to seek a new proviso in clause (99A) whereby profit and gains on sale of immoveable property to a rental REIT Scheme shall be exempt from tax upto 30 June 2021.
- Increase in fixed value of gas supplied to CNG dealers from PKR64.80/kg to PKR74.04/kg
- Increase in Sales Tax on Sugar from 8% to 17% and increase in FED on Cement from PKR 75/bag to PKR 100/bag.
- Increase in FED on cigarettes from PKR 700 to PKR 1000 per 1000 sticks.
- Increase in tax rate on income from debt to 15-20% from earlier 10-15%.
- Freezing Tax Rates for Companies at 29% for the next two years.
- Tax credit of 10% for investment in BMR will be abolished after June’19. For tax year 2019-2020, the tax credit is being reduced from 10% to 5% for BMR.
- Normalization in tax rate to 15% on dividend income, originating from power generation companies or coal supplying companies.
- For tier-1 retailer, it may be made mandatory to integrate their points of sales (POSs) with FBR’s Computerized System.
- Retail shops having an area in excess of 1000 square feet may be included in Tier-1.
- Customers of Tier-1 retailer may receive cash back up to 5% of the sales tax paid on their purchases.
- The Tier-1 retailers shall pay sales tax at the applicable rates and will no more have option to pay sales tax on turnover basis or at the rates specified in SRO 1125.
- Disclosures and tax rates for real estate significantly enhanced.
- Minimum turnover tax is increased from 0.2-1.25% to 0.25-1.5%.
- Exemption of duty on import of plant and machinery for setting up hydrocracker plants for oil refining.
- Increase in sales tax on finished textile goods to 17%.
- Withdrawal of zero rating for the textile sector.
- Import duty exempted for 19 items of raw materials and essential items of medicinal use
- Proposal to increase FED from 16% to 17% on Vegetable ghee and cooking oil. Concessional rate on edible seeds removed.
Areas of Major Relief
- Allocation of PKR 80bn for industrial sector (PKR 40bn for concessionary gas & electricity; PKR 40bn for export sector).
- Removal of ban on export of PMC and PVC to Afghanistan and zero-rating on export of PMC and PVC to Afghanistan.
- Sales tax reduced rate from 17% to 7.5% on food related inputs such as meat, vegetables, flour etc.
- Reduction of rate of sales tax on concentrated milk (powder) is proposed at 10%.
- Additional sales tax of 2% on electricity and gas appliances, foam, confectionary, arms, batteries, lubricants, auto parts, tyres, etc. to be removed.
- Withdrawal of 3% Value Addition Tax on Petroleum Products and on import of mobile phones.
- Fixed sales tax on Brick Kilns at standard rate of 17%.
- Exemption of Custom duty on medicines for certain diseases.
- Allowing zero-rating on supply of tobacco to exporters.