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Express Tribune
24-07-2025
- Business
- Express Tribune
Retail sector pays extra Rs455b
Listen to article The Prime Minister's Office said on Wednesday that the retail sector paid an additional income tax of Rs455 billion in the last fiscal year, a startling claim made on the basis of a briefing given by tax authorities. In an official statement released by the PM Office, it was stated "in the retail sector, tax collection increased by Rs455 billion compared to the previous year, driven by the integration of point-of-sale systems and stricter enforcement". Officials of the Federal Board of Revenue (FBR) claimed that total income tax payments made by the retail sector in fiscal year 2024-25 were in fact Rs617 billion and the additional income tax was Rs455 billion. They said that the collection of Rs617 billion included Rs316 billion in quarterly advances given by three categories, wholesalers, retailers, traders and some companies. The surprising Rs316 billion in quarterly advance could be looked into with critical lenses due to the highly informal nature of the sector. Sources in the FBR told The Express Tribune that a loose definition of the retail sector was used, which included some corporate sector firms. The official statement added that Prime Minister Shehbaz Sharif chaired a review meeting on the ongoing reforms in the FBR, lauding the progress made so far while stressing the need for sustained and time-bound efforts to overhaul the tax system in line with modern requirements. Sources said that during the meeting discussions took place on the share of retail and manufacturing sectors and the record tax contribution of Rs555 billion made by the salaried class. Some of the participants were of the view that the manufacturing sector and salaried individuals were highly overburdened compared to their contribution to the economy. According to Pakistan Bureau of Statistics' (PBS) data, the share of the manufacturing sector in the economy was hardly 12% while the share of wholesale and retail sectors was 18% in FY25. FBR spokesman Dr Najeeb Memon did not respond to a question about the breakdown of additional income tax of Rs455 billion collected from the retail sector. However, an FBR official said that it was a definitional issue as various categories were included in the retail sector and as a result total income tax contribution reached Rs617 billion. With the additional Rs455 billion, the total income tax collection from the retail sector should have been Rs940 billion. In fiscal year 2023-24, the collection was Rs484 billion on the basis of the new loose definition, said the sources. Retailers and traders are functioning under a highly informal mechanism. According to the input the FBR has used for claiming the collection of Rs617 billion and an additional Rs455 billion, the wholesalers, traders and retailers are treated as part of the retail sector. These three categories paid income tax in the shape of advance income tax on a quarterly basis, admitted income tax with annual returns, withholding taxes on sales, purchases, imports and electricity bills, and other taxes. FBR officials claimed that the collection of Rs617 billion included Rs316 billion in advance income tax. In the advance tax, Rs30 billion was paid by wholesalers, Rs49 billion by traders and Rs316 billion by retailers. Likewise, the admitted income tax stood at Rs28 billion, including Rs14 billion from traders, Rs5.3 billion from retailers and Rs8.5 billion from wholesalers, the sources said, adding that these three categories also paid Rs216 billion in withholding taxes. Of this, the wholesalers paid Rs28 billion, traders Rs119 billion and retailers Rs69 billion. In the category of others, Rs57 billion in income tax was paid by these three categories. However, if one goes by the definition of the retail sector and its contribution, the sources said, in FY24, payments by the retail sector were Rs484 billion and in this case the net increase was Rs133 billion. The PM Office statement said that Shehbaz Sharif told the meeting that recent improvements in the tax machinery were "encouraging," but reforms must lead to the creation of a sustainable, digitised and facilitative tax system. The PM directed the FBR to accelerate digital transformation, restructure its digital wing with a clear roadmap and enhance enforcement to curb the informal economy. He also stressed the importance of stakeholder consultation in the reform process, particularly with businesses, traders and taxpayers. He reiterated that improvement in the tax system should contribute to boosting national revenue while reducing the tax burden on the common citizen. The meeting was briefed that as a result of reforms and enforcement measures, the tax-to-GDP ratio registered a historic rise of 1.5% in FY25 compared to FY24. However, the FBR missed the IMF condition to increase the ratio to 10.6% despite imposing record taxes. The PM Office said that the number of income tax return filers surged from 4.5 million in 2024 to over 7.2 million by June 30, 2025. FBR officials also reported significant progress under the faceless customs clearance system, which increased revenue and was expected to reduce clearance time from 52 hours to just 12 hours in the next three months.
Express Tribune
19-07-2025
- Business
- Express Tribune
Google granted tax exemption
Sources said tax authorities assured the company that 'Google is not the target of the Digital Presence Proceeds Tax Act' and that the legislation is designed to address only those with significant digital presence but no physical or registered presence in Pakistan. photo: REUTERS Listen to article Pakistan has assured US-based Google that it will be exempt from the newly imposed 5% digital tax, and parts of the company's income will be taxed at even two-thirds reduced rates, further reducing the country's earnings from foreign firms operating locally. The clarification, given by the Federal Board of Revenue (FBR) to the tech giant, has raised questions about the effectiveness of the new tax law, indicating that the government may have not fully considered the implications before enacting the Digital Presence Proceeds Act 2025 last month. The government enacted the Digital Presence Proceeds Act in June to enhance tax collection from offshore companies with significant digital presence that were not paying taxes on their earnings. Sources said tax authorities assured the company that "Google is not the target of the Digital Presence Proceeds Tax Act" and that the legislation is designed to address only those with significant digital presence but no physical or registered presence in Pakistan. This assurance was sent electronically to Kyle Gardner, Google's representative for government affairs in South Asia. Google has a significant business presence in Pakistan and provides services for online advertising, search engines, cloud computing, communication, and entertainment. It is also the single largest contributor of digital service tax payments. In contrast, firms like Meta, Amazon, Microsoft, and Netflix contribute little to the over Rs1 billion in total income tax collected from tech giants, according to FBR officials. The tax authorities assured Google that since it has a branch office in Pakistan, it will not be liable to pay the 5% tax on its income due to its legal status as "a tax resident under relevant tax laws of Pakistan." FBR spokesman Dr Najeeb Memon was not available for comments. The new law states that it will not apply to any payment for digitally ordered goods where such payment is effectively connected with a branch office of the foreign vendor in Pakistan, and the goods are supplied from within Pakistan. It also excludes digitally delivered services received in Pakistan and rendered through a branch office of the foreign vendor. "Since you are operating through a registered branch, your operations fall squarely within this exemption. Similarly, the digital services tax provisions of the income tax law do not apply to tax residents of Pakistan," stated the FBR communication with Google. The enactment of the Digital Presence Proceeds Act had created ripples in Pakistan, particularly among YouTube users. Before the new budget, Google was paying 10% income tax under Section 152 of the Income Tax Ordinance, which the government increased to 15%. However, surprisingly, the government has also shown a path for Google to pay only 5% income tax instead of 15%. Authorities further stated that even if any of Google's operations are conducted from outside Pakistan, the applicable rate under the Digital Services Tax and the Digital Presence Proceeds Act has been reduced to 5% instead of the 15% rate the company had perceived. According to the FBR, if a person is subject to the Digital Presence Proceeds Tax, then tax under Section 152 of the Income Tax Ordinance shall not be deducted on the same transaction. "This safeguards Google against any double taxation. In fact, Google's applicable tax rate has now been reduced from 10% to 5%, given that the Digital Proceeds Act imposes a 5% rate compared to the 15% withholding tax rate under the Income Tax Ordinance," the government assured Google. Going a step further, the government has offered Google full income tax exemption if it shifts its local branch office to a Special Technology Zone (STZ). Under Clause 123EA of the Second Schedule of the Income Tax Ordinance, 2001, profits and gains derived by zone enterprises under the STZ Authority Act are fully exempt from income tax until 2035. The law was intended to tax digitally delivered services provided over the internet or electronic networks, where delivery is automated with minimal or no human involvement. These include services such as music, audio and video streaming, cloud computing, software, telemedicine, e-learning, online banking, architecture, research, consultancy, and digital accounting services.
Express Tribune
29-05-2025
- Business
- Express Tribune
Govt mulls 1.5% tax on imports
At high tax rates, profit margins for sellers decrease, leaving them with options to pass on the burden to consumers, compromise on the quality of products, evade taxes or find cheaper illicit goods. photo: file Listen to article In what could become the single largest new revenue source in the budget, the government is considering imposing a 1.5% withholding tax on the value of imports. The tax would be collected by banks at the time of making payments to overseas suppliers. The measure, still under discussion, will be used as an enforcement tool to curb the widespread under-declaration of import values, a senior government functionary told The Express Tribune. He said that the tax would apply to commercial importers only, who would have the right to claim adjustments against their final tax liabilities. Currently, commercial importers pay withholding tax when filing goods declarations with the Customs Department. Under the new plan, however, the tax would be deducted when the payment is made to the foreign supplier through banking channels. Sources said the Federal Board of Revenue (FBR) has briefed the International Monetary Fund (IMF) about its proposal to tax imports at three key points: upon arrival, during shipment, and at the stage of payment to exporters. While it remains unclear whether the IMF has endorsed the proposal, the plan appears to be the government's biggest attempt in the budget at hitting the next fiscal year's tax target of over Rs14 trillion. Finance Secretary Imdad Ullah Bosal on Thursday said there were no plans to delay the budget presentation, reiterating thrice that it would be presented on June 10. Meanwhile, the Annual Plan Coordination Committee will meet on June 3, and the National Economic Council will convene on June 6 to approve macroeconomic and development plans for FY25. The proposed withholding tax would be deducted at the point of sending money abroad through letters of credit, said the sources. Banks would follow a model similar to how they deduct tax on overseas credit card payments. FBR spokesperson Dr Najeeb Memon and Chairman Rashid Langrial did not respond to queries on the matter for the purposes of this story. A recent report by the Policy Research Institute of Market Economy (PRIME), titled 'Combating Illicit Trade in Pakistan', estimates that the country is losing a staggering Rs3.4 trillion annually to black market activities. Of this, nearly 30% stems from misuse of the Afghan Transit Trade facility. These losses amount to 26% of the current fiscal year's total tax target. The report warns that illicit trade is eroding formal businesses, government revenues, and consumer safety. It highlights outdated border controls, minimal customs automation, a lack of risk-based profiling, and poor scanning technologies as key contributors to rampant smuggling. If passed by Parliament, the new withholding tax could offer the FBR a relatively easy way to collect revenue, especially since it would be implemented through banks. The tax authority has historically underperformed in areas where it must rely on its own enforcement rather than external withholding agents such as banks, provincial bodies, or employers. The government has previously relied on indirect taxation, including last year's controversial 20% federal excise duty (FED) on the packaged juice industry. The result was a 45% drop in sales, according to Atikah Mir, a representative of the industry. The Fruit Juice Council is lobbying for the FED to be reduced to 15%, arguing that the move would benefit both the industry and revenues. Meanwhile, another tool used frequently by the FBR is blocking genuine tax refunds to inflate revenues. On Thursday, Special Assistant to the Prime Minister Haroon Akhtar Khan met with a delegation from Utopia Industries to address their pending tax refunds. According to a statement from the Ministry of Industries, Utopia Industries — a leading exporter of mattress covers, pillows, comforters, and plastic products — has been unable to recover more than Rs3 billion (approximately $10 million) despite submitting all required documentation. The company, which began operations in 2020 with a $50 million investment, now ranks among Pakistan's top 12 exporters by revenue and leads in the number of containers shipped abroad. It is also one of the top two sellers on Amazon, with annual revenues of $170 million. All of its products are branded under its own name and carry Pakistani origin labels, distributed widely across households in the United States, Canada, and the UK. According to company officials, Rs600 million in sales tax refunds are pending from the April-January period, despite refund payment orders having been generated. An additional Rs700 million in refunds has been deferred for the same period, and Rs350 million in income tax refunds have been stuck since 2022. Utopia's representatives also met the finance minister in Washington, DC, last October and have filed a complaint with the Federal Tax Ombudsman, but the matter remains unresolved. The company says it has reached out to multiple stakeholders, including the All Pakistan Textile Mills Association, the Pakistan Textile Council, the commerce and planning ministers, and even the Special Investment Facilitation Council and the Pakistani ambassador to the USyet the issue persists.
Express Tribune
28-04-2025
- Business
- Express Tribune
Salaried class pays 56% in taxes
'We are considering alternate options to reduce the burden of the salaried class without compromising progressivity in taxation,' said Dr Najeeb Memon, the spokesman of the FBR. PHOTO: REUTERS The struggling salaried class has paid a record Rs391 billion in income tax during nine months of this fiscal year, a highly discriminatory taxation where 10% of the total income tax collected from across Pakistan is now paid by salaried individuals. Compared to Rs10 that the salaried class paid in taxes during July-March period out of every Rs100, the blue-eyed traders contributed merely 60 paisa. Income tax payments during the nine-month period of this fiscal year were Rs391 billion, Rs23 billion more than the total income tax the salaried class paid during the 12-month period of the previous fiscal year, according to provisional collection estimates compiled by the Federal Board of Revenue (FBR). During the July-March period, the FBR had collected Rs4.1 trillion in total income tax. The payments by salaried persons alone were nearly 10%, showing how the marginalised voiceless segment is overburdened by the government. Last year, this ratio was 7.5%. The government of Prime Minister Shehbaz Sharif had targeted an additional Rs75 billion in income tax from the salaried class for the full fiscal year 2024-25. However, the figure has already surpassed Rs140 billion, with three months still remaining in the fiscal year. Income tax from the salaried class in the last nine-months has increased by 56% compared to the previous fiscal year. Last year, the salaried class paid Rs368 billion in taxes. However, despite this backbreaking burden, where salaried individuals are taxed on their gross income without adjustments for expenditures, the government did not raise the issue of alleviating this burden during its recent talks with the International Monetary Fund (IMF). "We are considering alternate options to reduce the burden of the salaried class without compromising progressivity in taxation," said Dr Najeeb Memon, the spokesman of the FBR. The IMF team is arriving in Pakistan on May 14th to vet the next fiscal year's budget before it is presented in the National Assembly around June 4th, according to sources. The IMF team will stay till May 23rd. The sources said that higher collection of taxes from salaried individuals could become a reason for not significantly lowering tax rates in the next fiscal year, due to its substantial revenue implications. In contrast to Rs391 billion paid by the salaried persons, the retailers, mostly unregistered, contributed only Rs26 billion on account of withholding income tax on their purchases. The amount of tax that traders paid under section 236-H was 1,420% less than taxes paid by salaried persons. Compared to every Rs10 that the salaried class contributed in taxes, the retailers paid mere 60 paisa. Besides, wholesalers and distributors also paid Rs17.5 billion withholding tax in nine months and almost half of them were unregistered with the FBR, said the sources. PM Sharif could not live up to his promise of collecting due taxes from the retailers. The IMF may ask Pakistan to show credible alternate fiscal means to offset the impact of any reduction in taxes on the salaried class. In the budget, the government had imposed 2.5% withholding tax on traders, in the hope that this would force them to come into the tax system. Though the increase in the rate did help collect Rs13.3 billion more from the traders, but the intended objective could not be achieved. The traders passed on the cost of the additional tax to the end consumers. Last June, the government significantly increased the tax burden on salaried individuals by reducing the number of tax slabs, disproportionately affecting the middle and upper-middle-income groups. The highest tax rate of 35% is now applied to those earning Rs 443,000 monthly, with an additional 10% surcharge, bringing the total tax rate to 38.5% for the highest slab. The details showed that non-corporate sector employees paid Rs166 billion income tax this year, which is higher by Rs50 billion or 43%. Corporate sector employees paid Rs117 billion in income tax, also higher by Rs40 billion or 52%. Employees of the provincial governments paid Rs69 billion in taxes, which was up by Rs34 billion or 103%. Federal government employees paid Rs39 billion, higher by Rs15.5 billion or 65%. For the current fiscal year, the IMF had given Rs12.97 trillion tax target to the FBR, which has already sustained Rs714 billion in shortfalls in nine months. The IMF has lowered the target to Rs12.3 trillion, but the FBR's internal estimates suggested that the collection may still remain in the range of Rs11.7 trillion. This is despite the fact that the government imposed Rs1.3 trillion in additional taxes in the budget. The FBR is of the view that due to lower than estimated economic growth and inflation, its collection took a major hit.
Express Tribune
15-04-2025
- Business
- Express Tribune
Govt scraps 3% FED on property sale
Listen to article The government has decided to immediately abolish the 3% federal excise duty (FED) being charged on the first sale of all properties in Pakistan after July. This reverses a contentious tax measure, that has severely damaged the real-estate sector, after almost 10 months of its introduction. The decision has been taken in consultation with the International Monetary Fund (IMF), a senior Federal Board of Revenue (FBR) official confirmed to The Express Tribune on Tuesday. Separately, an IMF budget special mission is reaching Pakistan on May 14 to vet the fiscal year 202526 budget. It has been decided that the 3% FED on allotment or transfer of property by filers, and 5% by non-filers, will be abolished, said the sources. They added that a summary has already been moved by the FBR to initiate the legal process for abolishing the duty. The prime minister's task force on the housing sector has recommended scrapping the 3% FED, and its decision is proposed to be implemented in due course, said Dr Najeeb Memon, FBR spokesperson. He added that legislation is expected to be introduced soon. There has been negligible collection during the JulyMarch period of this fiscal year due to most real-estate authorities' reluctance to accept the duty, which falls in the provincial domain. Under the Constitution, immovable property is a provincial subject, and taxpayers have challenged the duty in the courts. Finance Minister Muhammad Aurangzeb has already given his consent to move the summary to abolish the duty. The matter will now be tabled before the federal cabinet to amend the Federal Excise Duty Act. The government wants to abolish the duty within this month, subject to required legislative approvals. IMF Resident Representative, Mahir Binici, did not respond to a request regarding whether the IMF endorsed abolishing the 3% FED. The duty had been imposed effectively on every house, plot, and apartment in Pakistan sold after June 30, 2024. The levy had been introduced at the time of the budget's approval by the National Assembly. It applied to commercial properties and the first sale of residential plots or properties, with rates of 3% for filers, 5% for late filers, and 7% for non-filers, collected at the time of booking, allotment, or transfer. As part of additional measures introduced on the eve of the budget's approval, the government imposed a Rs500,000 tax on farmhouses ranging from 2,000 to 4,000 square yards, and Rs1 million on farmhouses over 4,000 square yards within the Islamabad Capital Territory. Similarly, a Rs1 million tax was imposed on residential homes ranging from 1,000 to 2,000 square yards, while homes exceeding 2,000 square yards now attract a Rs1.5 million tax. A 4% stamp duty was also approved on the value of properties being traded in Islamabad Capital Territory. Adding insult to injury, the government also imposed a 10% surcharge on income tax for individuals earning an annual income of Rs10 million just before the budget's approval. Sources said a proposal is under consideration to abolish this surcharge starting July. They added that the government is considering various options to reduce the tax burden on the salaried class by lowering tax rates and increasing the taxable income threshold. However, these proposals will be subject to IMF endorsement next month. The IMF's budget mission is scheduled to arrive in Pakistan on May 14 to vet the next fiscal year's budget and tax measures before they are presented in the National Assembly, likely on June 4 or 5, just before the Eid holidays. The finance minister stated last Saturday that the IMF mission on the budget would arrive around mid-May. Abolishing the duty will boost the real-estate sector, as the duty is not adjustable, unlike withholding taxes, said Ahsan Malika real-estate dealer who was also part of the PM's Task Force on Housing. The real-estate sector is facing sluggish growth prospects due to high property prices and heavy transaction taxes. The IMF, as a policy, discourages speculative trade in the real-estate sector and has favoured substantially increasing withholding tax rates in the budget. Despite the overall sluggish market, the government collected Rs108 billion in withholding taxes on property sales and purchases during the first half of this fiscal yearRs17 billion, or 18%, higher than the same period last year. The PM's task force had also recommended abolishing the deemed income tax on properties, which it described as bad legislation and a matter falling within the provincial domain. It also suggested standardising and rationalising stamp tax rates across provinces and Islamabad. Other recommendations include abolishing the capital value tax in Islamabad and ensuring uniform taxation policies through the National Tax Council. The task force has also proposed revising property valuations every three years to reflect market prices and introducing transaction tax exemptions for specific categories, such as low-cost housing, government plots, and first-time homebuyers. It further suggested that capital gains tax should revert to a slab-based system, as was applicable in the last fiscal year, and that input costs be reduced by rationalising taxes on construction materials. The task force also recommended reducing the policy rate to single digitsan idea the central bank and the IMF did not accept.
