Salient Features of Budget 2022-23

The government presented the budget proposals on Friday, June 10, 2022, for the fiscal year 2022-23. The total federal budget outlay is Rs 9,502 billion. Upon approval from the National Assembly of Pakistan, the following will be incorporated into the new finance act.

INCOME TAX ORDINANCE 2001:

Relief measures:

• The fixed tax regime for retailers and specified service providers.
• Restriction on the frequency of audits to once in four years.
• Adjustment of tax collected on all materials at import stage for industrial undertaking for own use.
• Relief on taxation for salaried and business individuals by increasing the threshold for taxation.
• Admissibility of 100% depreciation in the first year.
• Reduction in tax rate from 10% to 5% on Bahbood certificates.
• Withdrawal of withholding tax on educational expenses payments.
• Exemption from tax on income of certain non-profit entities.
• Reduced rate of 3% on the provision of services by REIT Management Company and NCCPL.
• Withdrawal of withholding tax on rent of machinery.
• Exemption from advance taxes to exempt entities.

Revenue measures:

• Increase in the tax rate for banks for the tax year 2023 onwards from effective 39% to 45%.
• Increase in the tax rate of banking companies on adverse ADR ratio.
• Tax on higher earning persons for poverty alleviation for the tax year 2022 and onwards.
• Tax on deemed income from the unutilized property above Rs. 25 million including luxury farmhouses and exclusive of one self-occupied house.
• Increase in rate from 1% to 2% on the sale and purchase of property for filers.
• Increase in rate from 100 percent to 250 percent in case of purchase of property by persons who are not active taxpayers.
• Increase in rate of 200 from 100 percent in case of purchase of motor vehicles by persons who are not active taxpayers.
• The level playing field for all classes of assets. Capital gain tax on disposal of securities and real estate synchronized along with incentives for vertical growth of cities.
• Increase in the advance tax rate on private vehicles of 1600 cc and above.
• Increase in the yearly advance tax rate on tax on passenger vehicles.
• Omission of deductible allowance for profit on debt and tax credit for investment in shares, health insurance, and pension funds.
• Restriction on carrying forward of minimum tax in subsequent years.
• Omission of exemption on flying allowances and submarine allowance.
• Omission of reduced rate of taxation for investment in Government securities.
• Withdrawal of Income Tax (Amendment) Ordinance, 2022.

Streamlining measures:

• Requirement for the adoption of digital mode of payment for companies.
• Clarification regarding the exempt income of partners if the income of AOP is exempt.
• Introduction of Synchronized Withholding Administration Payment System.
• Streamlining of audit procedures.
• Increase in time limitation for best judgment from 5 to 6 years.
• Enhancement of restriction for the passing of the order from 120 to 180 days.
• Clarification regarding remittance through money transfer operations.

Documentation of economic measures:

• Inclusion of concept of the beneficial owner.
• Alignment of Point-of-Sale regime with Sales Tax provisions and introduction of prize scheme. 3. Increase in scope of tax on payments to non-residents and enhancement of rate from 5% to 10% on offshore digital services.
• Increase in scope of criteria for becoming tax resident individuals.
• Introduction of advance adjustable tax on credit/debit card payments.
• Sharing of information between NADRA and FBR for tax base broadening.

Fiscal Targets:

• The GDP target is set at 5%.
• The inflation target is set at 11.5%.
• Fiscal deficit to be targeted at 4.9% of GDP in FY23.
• Exports & Imports target at $35 billion & imports at $70 billion.
• The current account deficit was targeted at 2.2% of GDP as compared to the 4.1% deficit of FY22.
• Remittances are expected at $33.2billion in FY23 as compared to $31.1 billion in the last year.
• Rs. 3,950 billion for debt servicing has been allocated as compared to Rs. 3,144 billion in FY22.
• Targeted subsidies at Rs. 699 billion.
• Total tax collection target at Rs. 7,004 billion as compared to Tax collection of Rs. 6,000 billion in FY22.

Banking Sector:

• The banking sector is to be taxed at 42% from the current taxation of 39%.
• Payments made through debit, credit, and prepaid cards to a foreign country would be charged with 1% & 2% advance WHT for filers and non-filers.
• Banks will provide cheap financing for the purchase of solar panels for households using less than 200 units of monthly electricity.

Property Market:

• Those owning more than one immovable property worth Rs.25 million or more will be taxed at 1% of imaginary income which will be 5% of the property. However, the personal home will be exempt from this tax.
• 15% Capital Gains Tax imposed on Immoveable property held for up to 1 year.
• Capital Gains Tax will reduce from 2.5% each year to zero percent after 6 years.
• Advance Tax on sale and purchase of immovable property – 2% (Filers), 5% (non-Filers).
• Sale and purchase of property by tax filer – 2% (Previously 1%).

Auto Sector:

• Advance Tax has been increased from 100% to 200% for non-filers on the purchase of luxury cars with engine capacities of over 1600cc.
• Duties on import of hybrid cars have been decreased by 100%, 50%, and 25% on 1200cc and above, 1800cc and above, and 2500cc and above, respectively.
• Capital gains tax has been imposed when selling oars worth over Rs. 5 million.

Miscellaneous:

• The condition of CNIC/NTN in case of supply to unregistered persons has been removed.
• Sales Tax has been reduced to ZERO on the import of solar panels and their distribution.
• Income Tax (taxable income) slab has been moved up from Rs.600, 000 to Rs.1, 200,000 per annum.
• Energy consumers who consume less than 200 units of electricity will be given loans to buy solar panels.
• Government to provide interest-free loans up to Rs.500, 000 to youth. This is a great opportunity to start a small business in Pakistan.
• Air Travel – Up to Rs.50, 000 duty on Club, Business, and First Class.
• The budget proposes to end tax credits on IPOs, mutual funds, and insurance and pension funds.

SALES TAX ACT 1990

Relief measures:

• The condition of CNIC/NTN in case of supply to an unregistered person has been removed.
• Sales Tax exemption has been granted on the import and supply of all types of seeds.
• Sales Tax on Tractor is withdrawn.
• The exemption has been granted on imports by UN diplomats/diplomatic missions and privileged persons.
• Import and supply of solar panels (PV modules) have been exempted from sales tax.
• Goods imported by or donated to non-profit charitable hospitals have been exempted. Furthermore, goods supplied to charitable hospitals of fifty beds or more have also been exempted from sales tax.
• Temporary imports have been exempted from the levy of sales tax.
• Made-up jewelry has been made chargeable to a 3% fixed tax on local supply and a 4% fixed tax on imports.
• Plant and machinery imported by power generation projects that entered into an implementation agreement with GOP have been exempted from sales tax.
• Rs.90 per kg is reduced to Rs.60 per kg on potassium chlorate.
• Import by EPZ has been exempted from sales tax.

Revenue measures:

• The scope of further tax has been enhanced to include non-active taxpayers as well.
• The regime of other than Tier-1 retailers has been streamlined.
• VAT has been imposed on compressor scrap, motor scrap, and copper imported by manufacturers. Cutting scrap even when imported by manufacturers.

FEDERAL EXCISE ACT 2005

Revenue measures:

• The rate of FED is enhanced on locally manufactured cigarettes.
• The rate of FED enhanced on the club, business, and first-class travel by air is enhanced from Rs. 10,000 to Rs. 50,000.
• The rate of FED is enhanced on telecommunication services is enhanced from 16% to 19.5%.

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