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Express Tribune
3 days ago
- 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.
Express Tribune
24-03-2025
- Business
- Express Tribune
Salaried class coughs up Rs331b in taxes
The salaried class paid staggering Rs331 billion income tax in the eight months of the current fiscal, which is 1,350% more than the taxes paid by retailers, but still not enough for the government to seek relief from the International Monetary Fund (IMF) for the marginalised segment. The total income tax contributions by the salaried people during July-February period of this fiscal year were Rs120 billion or 56% higher than Rs211 billion collected during the same period of the last fiscal year. The government of Prime Minister Shehbaz Sharif had targeted the collection of Rs75 billion additional from the salaried class for the full fiscal year 2024-25. The figure is already Rs120 billion higher and still four months are remaining in the close of the fiscal year. In the last year, the salaried class paid Rs368 billion in taxes. But despite this backbreaking burden on the salaried people, who pay taxes on the gross income without adjusting expenditures, the government did not take up the issue of lessening this burden with the IMF during the recently held talks. There were no discussions with the IMF to lower the tax burden of the salaried class, sources said. When contacted, FBR Spokesperson Dr Najeeb Memon said that the government would review the taxes on the salaried class in the upcoming budget exercise. In contrast to Rs331 billion paid by the salaried persons, the retailers, mostly unregistered, contributed merely Rs23 billion on account of withholding income tax on their purchases. The amount of tax that the traders paid under section 236-H was 1,350% less than the taxes paid by the salaried persons. The wholesalers and distributors also paid Rs16 billion withholding tax in eight months and ironic though almost half of them were unregistered with the FBR, said the sources. In the budget, the government had imposed 2.5% withholding tax on the traders in the hope that this would force them to come in the tax system. The increase in the rate did help collect Rs12 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. The government's Tajir Dost scheme to bring in 10 million traders in the net also failed badly and it has now stopped talking about it. The government was supposed to collect Rs50 billion from the retailers under the scheme, but it ended up collecting peanuts. The sources said that the FBR admitted before the IMF that the traders and the jewellers were the two hard nuts to crack. The FBR also confessed before the IMF that due to major design flaws, the Tajir Dost Scheme had failed. The IMF was briefed that the large traders also stopped the smaller ones from joining the scheme and as a result it could not expand the scheme to 43 cities. The FBR's plan to bring a minimum of 10 million retailers in the net had flopped, the IMF was told. The sources said that the Finance Minister Muhammad Aurangzeb had asked the FBR to begin the exercise to review the salaried class taxation with an objective to provide some relief. However, no such discussions took place with the IMF. In last June, the government massively increased the tax burden of the salaried persons by reducing the number of slabs, which put abnormal burden on the middle and upper middle-income groups. The maximum 35% rate is now unfairly charged at Rs500,000 monthly income and a 10% surcharge is also imposed, which takes the total tax rate to 38.5% for the highest slab. Where the government did not feel the pain of the salaried persons, it tried to negotiate with the IMF to reduce the tax burden of the real estate sector. The IMF did not accept the government's demand and has, for now, kept the rates unchanged. The details showed that non-corporate sector employees paid Rs141 billion income tax this year, which is higher by Rs42 billion or 43%. The corporate sector employees paid Rs101 billion in income tax, also higher by Rs37 billion or 56%. The provincial governments' employees paid Rs57 billion, up Rs28 billion or 96%. The federal government employees paid Rs34 billion, again higher by Rs14 billion or 66%. For the current fiscal year, the IMF has given Rs12.97 trillion tax target to FBR, which has already sustained Rs605 billion shortfall in eight months despite collecting Rs331 billion from the salaried persons. For the month of March, the tax target is Rs1.220 trillion that the FBR is again going to miss by a wide margin. Till Sunday, the FBR had collected Rs515 billion, leaving it with a gigantic task of generating Rs704 billion within this week. Friday will be the last working day before Eid holidays.
Express Tribune
27-02-2025
- Business
- Express Tribune
PRAL board starts amid violations
Listen to article The board of Pakistan Revenue Automation Limited (PRAL) – a key player in the government's Rs3.7 billion plan to modernise the information technology arm of the tax machinery – has started its work without first disclosing potential conflicts of interest or developing a code of conduct, a requirement under the law. The non-disclosure of conflicts of interest violates the State-Owned Enterprises (SOE) Act and the SOE policy – two legal frameworks developed with international financial institutions' assistance to improve governance in state-run entities. Sources revealed that the board has been holding meetings without first ensuring that newly appointed members have no direct or indirect conflicts of interest while making key policy decisions. The board is also responsible for overseeing the Rs3.7 billion PRAL restructuring plan. PRAL serves as the technology arm of the Federal Board of Revenue (FBR). The decision to proceed with meetings without first obtaining conflict of interest declarations from newly appointed members directly violates the SOE Act, SOE Policy, and the Companies Act 2017. The Express Tribune sent queries to PRAL Board Chairman Arif Saeed, FBR spokesperson Dr Najeeb Memon, and PRAL management regarding these violations. Only PRAL management responded, while the chairman and FBR spokesperson remained silent even after four days. "The management of the company is fully cognisant and strives to be compliant with all applicable legal requirements and obligations," PRAL stated in a written response. This suggests the board is operating in violation of the SOE law, which could result in penalties under the Companies Act. Sources said that after receiving the Express Tribune's questions, the PRAL board began drafting a conflict of interest policy. Under SOE policy, all directors and managers must sign a declaration upon appointment. This declaration confirms they have received and understood the policy on conflicts of interest. It also states they will not accept payments, bribes, favours, or inducements that could influence their decisions. Failure to comply could lead to their removal. The government recently appointed the PRAL board, which Finance Minister Muhammad Aurangzeb and FBR Chairman Rashid Langrial have praised as highly talented. The board is chaired by Arif Saeed, with independent directors including Salman Akhtar, Dr Muhammad Fareed Zafar, Ehsan Saya, and Nazish Afraz. The Express Tribune asked the chairman about the SOE policy's requirement for directors and managers to declare conflicts of interest. He was also asked about Section 34 of the SOE Policy, which mandates a code of conduct for PRAL board members. Additionally, the chairman was asked about Section 13 of the SOE Act, which defines the term of office for directors. Section 13(2)(f) states that a director can be removed for failing to comply with the SOE's code of conduct and conflict of interest requirements. No response was provided. Meanwhile, PRAL has decided to hire 50 data experts through a third party. Sources raised concerns that this could compromise data protection and privacy. A third party may not ensure the security of sensitive information. The Express Tribune also asked the board chairman if third-party hiring could put taxpayer data at risk. External firms may not be trusted with highly confidential information. Additionally, the chairman was asked whether board members were involved in the hiring process, which falls outside their policy-making role. He did not respond. In its most recent meeting, the PRAL board approved several measures. These include creating an operational unit for FBR's requirements, forming a dedicated data wing for analytics and governance, and assigning experts to validate Change Request Forms (CRFs). The board also created an Apex Committee for project approvals and structured software development teams based on project scope. A Data Governance Policy was implemented, and recruitment for a Chief Information Security Officer (CISO) and Chief Data Officer (CDO) began. The board also formed a committee within the FBR to streamline project prioritisation. Sources said board member Salman Akhtar suggested hiring third-party firms for technical expertise. PRAL has already invited bids for third-party hiring, with a submission deadline of March 4. In December, the federal cabinet approved a Rs3.7 billion supplementary grant for PRAL restructuring. Official documents show the estimated recurring cost for the next fiscal year is Rs4.5 billion. Government documents highlight that PRAL's restructuring is critical to improving the tax-to-GDP ratio. The board has a key role in this effort. According to the cabinet's decision, PRAL will receive a one-line budget, with its board approving the annual budget based on government grants and its own revenue. The restructuring has significant financial implications. The government will provide Rs3.7 billion for the current year, while recurring costs will reach Rs4.5 billion from 2025-26 onwards. Among the major components of the PRAL restructuring are enhancing software development and maintenance capabilities through three modes: in-house development, in-house maintenance only, and outsourcing development to third parties. The plan also includes upgrading hardware and data centres, replacing end-of-life equipment, and establishing an analytics hub.
