The International Monetary Fund (IMF) has been known for its stringent demands regarding the fiscal policies of its debtor nations.
As a part of the IMF’s stipulations, Pakistan has recently introduced a significant increase in the tax rates on registration of vehicles above 2,000cc and higher income brackets of both salaried and non-salaried classes.
Previously, there had been no increase in these tax rates. However, to revive the IMF program, the government was compelled to instigate additional taxation measures to accrue more than Rs215 billion in national revenue. Rather than expanding the tax net to include those who are currently not contributing, the government chose to increase the tax burden on existing taxpayers.
Tax Rate Amendments in Detail
Under the revised Finance Bill 2023-24, which received parliament’s approval on Sunday, the government imposed a fixed tax on imported and locally manufactured vehicles ranging from 2,001cc to over 3,000cc.
For vehicles with an engine capacity of 2,001cc to 2,500cc, the fixed tax rate will be 6% of the vehicle’s value. This increases to 8% for vehicles with engine capacities between 2,501cc and 3,000cc and up to 10% for vehicles exceeding 3,000cc.
Moreover, the revised bill also proposed escalated tax rates for higher income brackets for salaried and non-salaried individuals. For salaried individuals with taxable income exceeding Rs1,200,000 but not exceeding Rs2,400,000, the tax rate remains the same at Rs15,000 plus 12.5% of the amount exceeding Rs1,200,000.
The tax brackets continue to rise progressively for higher income levels, reaching a maximum of Rs1,095,000 plus 35% of the amount exceeding Rs6,000,000 for individuals earning above Rs6,000,000.
The bill also raised the income tax on the earnings of individuals and associations of persons (AOPs) other than salaried individuals. These revised slabs have a tax rate ranging from 7.5% for taxable income exceeding Rs600,000 but not exceeding Rs800,000 and up to 35% for taxable income exceeding Rs4,000,000.
These Finance Bill 2023-24 amendments reflect the government’s efforts to meet the IMF’s conditions and secure much-needed funds.
