Federal Government has announced tax relief for business, industries and the stock market in budget 2018-19. During his budget speech, Minister for Finance Miftah Ismail announced a tax relief for the business community at large.
Miftah Ismail said that Tax to GDP ratio, which was 10.1% in 2013, will increase to 13.2% this year. Such phenomenal increase in tax collection in 5 years is not a small achievement, he claimed. “I want to thank taxpayers of Pakistan for this achievement,” Miftah stated. He announced to broaden the tax base in the future.
“FBR tax revenue target is proposed to be fixed at Rs. 4,435 billion which is to be achieved through tax administration and compliance and not through any new tax measures. The tax base will be enhanced while tax rates are being lowered,” Miftah Ismail announced.
Rationalization of Corporate Tax Rate
In budget 2018-19, the government has decided to reduce the corporate tax rate from 30 percent. The corporate tax rate will be 29 percent in the tax year 2018-19 and will be reduced by 1 percent each year up to the tax year 2023, eventually coming down to 25 percent.
Individual Tax Relief
Miftah Ismail announced relief for individuals but this relief was also announced in the Tax Amnesty Scheme. People who earn up to Rs.1.2 million annually or Rs.1 lakh per month won’t have to pay any income tax.
Tax will be levied at the rate of 5 percent for income between two and four lakhs monthly. People earning above four lakh monthly will be taxed at the rate of 15 percent.
Uniform Rate of GST on Fertilizers
After 1st July 2018, there will be a reduced uniform GST rate of 2 percent on all fertilizers. This will eliminate distortions in tax regime – currently 4 percent on DAP, 5 percent on Urea and 9-11 percent on others.
It is also proposed to reduce GST on agriculture machinery from the current 7 percent to 5 percent.
Reduction in Tax Rate on Undistributed Profits
Tax on undistributed profits is charged at the rate 7.5 percent on accounting profit if at least 40 percent of after-tax profits are not distributed within 6 months of the end of the year. The government has proposed to reduce this tax to 5% and the condition of distributing 20 percent after-tax profits in the new fiscal budget.
Real Estate Investment Trust tax rate on dividends will also be reduced from 12.5 percent to 7.5 percent.
Reduced Rate of Withholding Tax on Bank Transactions of Non-Filers
Currently, non-cash banking transactions from non-filers are taxed at 0.6 percent, however, the government has now proposed to reduce it to 0.4 percent on a permanent basis.
Increase in Minimum Threshold of Tax Deduction on Payment For Goods and Services
Under the existing law, the tax has to be deducted on payment for services exceeding Rs.10,000 and on goods exceeding Rs.25,000. The threshold for tax deduction is proposed to be enhanced to Rs. 30,000 on payment for services and to Rs. 75,000 on payment for goods.
Exemption for Deep Conversion Refineries
In order to promote investments in new deep conversion refineries, it is proposed that such refineries with a capacity of at least 100,000 barrels per day will be exempted from income tax for a period of 10 years. This will be applicable on both, new installed units or units which increase their capacity.
Rationalization of Tax Rate on Import of Coal
Currently, tax on import of coal is payable at a rate of 5.5 percent for companies and 6 percent for persons other than companies. The tax rate on coal has now been reduced to 4 percent.
Exemptions for Welfare Institutions
In recognition of the meritorious services being performed by welfare institutions, an exemption is proposed to be granted to society for the welfare of suit, Aziz Tabba Foundation, Saylani welfare international trust and Al-Shifa eye hospital.