ISLAMABAD: Exporters will be brought into the regular income tax regime, Exporters Facilitation Scheme terminated, and exporters will now use the credit tax regime to claim value-added tax (VAT) credits on locally purchased input.
This was noted in the International Monetary Fund (IMF) staff report on the Extended Fund Facility.
The report further noted that each province will amend agricultural income tax legislation and regime to fully align with federal personal income tax for small farmers and federal corporate tax for commercial agriculture to commence taxation by January 2025.
FBR asked to facilitate exporters on super tax, FTR if flexibility exists
Tax policy reforms will focus on simplifying revenue collection and broadening the tax base while ensuring the progressivity of the tax system. Key measures include removing exemptions and preferential treatments to reduce distortions, such as moving all products at 5 percent rate of GST to the 10 percent category by 2025-26, and efforts to transform the GST into a broad-based VAT.
The government will also introduce in 2025-26 budget an FED of 5 percent on pesticides, and enhance the FED on fertilizers by 5 percentage points. Personal Income Tax (PIT) reforms aim to make the income tax fairer by eliminating further tax credits and deductions, with the special regimes for exporters and construction and developers ended. Furthermore, any new exemption will be granted based on a cost-benefit assessment.
Other tax policy measures include moves to ensure equivalent taxation of all sources of income and introduction of a single turnover-based registration threshold for both income and GST registration to all businesses.
Under the Memorandum of Economic and Financial Policies of this report, the four provinces have agreed to amend their agriculture income tax (AIT) regimes to fully align them, through necessary legislative changes, with federal personal income (small farmers) and corporate income (commercial agriculture) tax regimes by end-October 2024. Each province will begin taxation of agricultural income under this new regime from January 1, 2025, with collection for second half of 2024-25 agricultural income in July 2025.
The FBR is to provide necessary technical assistance that any province needs in this regard to implement and assess this tax. This alignment of income tax regimes will increase the fairness of the tax system as income from agriculture will be taxed in the same way as other income.
The provinces have agreed to transition the services GST from a positive list to a negative list approach to combat tax evasion to take effect from the start of 2025-26. This strategic shift aims to enhance transparency and reduce loopholes by ensuring that all items not explicitly exempted are subject to taxation.
The Federal Board of Revenue (FBR) pledged to improve information sharing with provincial revenue authorities.
Provincial tax reforms will include a transition of GST on services from a positive to a negative list, which will take effect from the next fiscal year.
Under the contingency revenue measures the government has agreed to increase federal excise duty (FED) on aerated/sugary drinks and raise withholding tax rates on the import of machinery/raw materials and contracts/supplies/services to generate additional revenue of Rs 10.8 billion per month during 2024-25.
The revenue impact of these seven contingency revenue measures is projected at Rs 97.2 billion in the remaining three quarters (October-June) of 2024-25.
The IMF in its latest report stated should the 3-month rolling average revenue collection fall short of the projected target by 1 percent, in consultation with IMF staff, the government will evaluate the adoption of one or more of the following contingency measures:
(i) Increase advance income tax on import of machinery by 1 percentage point, expected collection of Rs 2 billion per month.
(ii) Increase advance income tax on import of raw materials by industrial undertakings by 1 percentage point, expected collection of Rs 3.5 billion per month.
(iii) Increase advance income tax on import of raw materials by commercial importers by 1 percentage point, expected collection of Rs 1 billion per month.
(iv) Increase withholding tax on supplies by 1 percent, expected collection of Rs 1 billion per month.
(v) Increase withholding tax on services by 1 percentage point, expected collection of Rs 0.5 billion per month.
(vi) Increase withholding tax on contracts by 1 percentage point, expected collection of Rs 0.5 billion per month.
(vii) Increase FED on aerated and sugary drinks by 5 percentage point, expected collection Rs 2.3 billion per month.
Copyright Business Recorder, 2024
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