Legal Point

Government Introduces New Tax Measures and Extends Exemptions in Various Sectors

The government has announced new tax measures and extended exemptions in certain sectors to generate more revenue for the upcoming fiscal year, meeting the International Monetary Fund’s criteria.

New Tax Measures

Finance Minister Muhammad Aurangzeb revealed these measures in the National Assembly on Friday. Among them is the introduction of a capital value tax on property in Islamabad and new tax measures on builders and developers.

The Finance Bill 2024, presented to the National Assembly on June 12, has been amended. In the amended bill, the Petroleum Development Levy (PDL) on diesel and petrol has been reduced from Rs80 to Rs70 per liter, but increased from the existing Rs60.

Increased FED on Air Tickets

The Federal Excise Duty (FED) on air tickets has been raised from Rs5,000 to Rs12,500 for economy and economy-plus foreign travel, a 150% increase. Other classes have seen a 40% rise in tax rates. These new rates will be effective from July 1.

The FED rate differs for club, business, and first-class flight tickets to various IATA Traffic Conference Areas. From July 1, the FED will be Rs350,000 for tickets to North, Central, and South America (Area 1), Rs150,000 for the Middle East and Africa (Area 2), and Rs210,000 for Europe and the Far East, Australia, New Zealand, and Pacific Islands (Area 3).

Impact on Exporters and Salaried Individuals

Despite opposition, exporters will now pay the standard corporate tax rate of 29% and a super tax where applicable, replacing the previous 1% tax on export turnover. Individuals and associations of persons earning over Rs10 million per year will face a 10% surcharge on their income tax.

Extended Tax Exemptions

The reduced tax rates for hybrid vehicles have been extended until June 30, 2026, as outlined in the auto policy. The FED on cement has increased from Rs3 to Rs4 per kilogram. Sales tax benefits for Fata/Pata have been extended for another year.

The exemption on the sale or transfer of immovable property now includes war-wounded personnel in service of the Pakistan Armed Forces, Federal or Provincial Government, ex-servicemen, and current or former government employees.

Other Tax Adjustments

The penalty for non-compliant telecom operators has been reduced to Rs50 million and Rs100 million. A new investigative wing within the FBR will tackle tax fraud. The dividend withholding tax rate has been lowered to 15% from 20%, and a 25% rebate for teachers and researchers has been restored.

Sales tax exemptions have been reinstated for newsprint, books (excluding brochures, leaflets, and directories), various medical equipment, and supplies and imports of plant and machinery for installation in tribal areas. Supplies of electricity to AJK and goods to hospitals run by charitable organizations have also been exempted.

Capital Value Tax on Properties

The finance bill introduces a capital value tax on farmhouses and residential properties in Islamabad. Farmhouses within Islamabad’s borders will face a CVT of Rs500,000 for areas between 2,000 and 4,000 square yards, and Rs1 million for larger areas. Residential houses will have a CVT of Rs1 million for areas between 1,000 and 2,000 square yards, and Rs1.5 million for larger areas.

New Tax on Construction and Sale

The government has also implemented a new tax on the construction and sale of residential, commercial, or other buildings and the development and sale of plots.

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