ICMA details critical highlights, implications of federal budget

KARACHI: Institute of Cost and Management Accountants (ICMA) has detailed the critical highlights and implications of Pakistan’s federal budget for 2024-25 on various sectors of the national economy.

Exports Sector:

The Export Finance Scheme (EFS) under EXIM Bank sees a significant boost, with its allocation rising from Rs.3.8 billion to Rs.13.8 billion to encourage export growth. However, exporters face new challenges with the shift from a 1% turnover-based Final Tax Regime (FTR) to a 29% tax on taxable profit, potentially hampering export competitiveness.

Moreover, the removal of zero-rating on local supplies under EFS could negatively affect exporters, as the new provision requiring withholding agents to collect 1% advance income tax from exporters upon realization of export proceeds.

Retailers/Wholesalers Sector:

Filing status now influences advance tax collection rates on sales to retailers, set at 0.5% for filers and 2.5% for non-filers. The Finance Act extends advance tax scope to all retailers. The expansion of the FBR Tajir Dost Scheme aims to register more retailers and wholesalers. Additionally, GST on TIER-Retailers of branded textiles and leather products rises from 15% to 18%, impacting the affluent class.

Salaried/Non-Salaried Sector:

The minimum wage increases from Rs.32,000 to Rs.37,000 per month. Income tax adjustments include a new tax structure where no tax is applicable for incomes up to Rs.600,000. Various slabs are detailed for higher income ranges, with rates increasing up to 35% for incomes above Rs.4,100,000. Non-salaried individuals face different tax rates, with the highest bracket at 45% for incomes above Rs.5,600,000. A 10% surcharge applies to individuals with taxable incomes exceeding Rs.10 million, and a 25% tax rebate for full-time teachers and researchers is restored.

Agriculture & Food Sector:

An allocation of Rs.5 billion is made for the Kissan Scheme. Sales tax adjustments include a 10% tax on local poultry and cattle feed supplies and an 18% GST on branded milk and corporate dairy farms. Federal excise duty is levied at Rs.15 per kg on white crystalline sugar, and customs duty concessions on fresh and dry fruit imports are withdrawn.

Textile Sector:

The removal of zero-rating on local supplies to registered exporters under EFS necessitates claiming refunds, complicating the process. The increase in tax rate from 1% (Final Tax) to 29% on profits, plus 2% advance tax on export proceeds, threatens to reduce export competitiveness. Additionally, a 2% customs duty is imposed on previously duty-free raw materials like raw cotton and fibers.

Automotive Sector:

The tax structure for motor vehicles is revised, ensuring fair contributions from luxury vehicle owners. Reduced sales tax rates on manufactured hybrid electric vehicles are extended until June 2026. The first registration tax rates for motor vehicles vary significantly between filers and non-filers, with rates increasing with vehicle size.

Import concessions for hybrid vehicles are withdrawn and additional customs duties on localized auto parts aim to boost local manufacturing.

Banking Sector:

Banking companies face restrictions on deducting “bad debts” classified as sub-standard or doubtful but can deduct those classified as “loss” related to non-performing assets. Super tax applies to banking companies for the tax year 2023 and onwards.

Energy Sector:

Incentives for manufacturing solar panels and allied equipment are introduced. Exemptions for importing equipment for energy projects, particularly for Gwadar Port and its Free Zone Area, are extended. Petroleum Development Levy rates are set at Rs.70 per liter for high-speed diesel, motor gasoline, and superior kerosene oil, and Rs.50 per liter for light diesel oil and E-10 gasoline. LPG produced in Pakistan now has a levy of Rs.30,000 per metric ton.

Financial Market/Stock Exchange:

The government removes slab-wise benefits on Capital Gains Tax (CGT) for holding securities over a year, maintaining a 15% top CGT rate for tax filers and increasing it from 30% to 45% for non-filers. Dividend income from mutual funds and REITs investing in debt securities is taxed at 25%. An increased advance tax rate on profit from debt for non-filers rises from 30% to 35%.

Health Sector:

A total of Rs.27 billion is allocated for healthcare. A health insurance scheme for journalists and media professionals is introduced. Sales tax on medicaments, including herbal medicines, increases to 18%, while exemptions remain for specific medical items and supplies to charitable hospitals. Customs duties on materials for dialysis equipment and specific neonatal treatments are waived, but duties on other medical supplies rise to 20%.

Real Estate Sector:

Profit taxes are set at 10% for construction and sale of buildings, 15% for development and sale of plots, and 12% for combined activities. Federal excise duty on immovable property varies based on the buyer’s tax status, with higher rates for non-filers. The CVT rate for Islamabad ranges from Rs.500,000 to Rs.1.5 million depending on the property size.

Information Technology:

The IT sector receives its highest-ever budgetary allocation of Rs.79 billion. Proposals include establishing a National Digital Commission and Pakistan Digital Authority, with significant allocations for IT parks in Karachi and Islamabad. However, GST on IT hardware rises from 5% to 10%.

Cement Sector:

Federal excise duty on cement increases from Rs.3 to Rs.4 per kg. These extensive changes in the federal budget 2024-25 reflect the government’s efforts to address economic challenges across multiple sectors, balancing revenue generation with incentives for growth and development.

Copyright Business Recorder, 2024