Legal Point

Major Changes in Tax Laws Through Finance Bill 2024

ISLAMABAD: Significant modifications are anticipated in the tax laws through the Finance Bill 2024. These changes aim to increase the financial transaction costs for non-filers of income tax returns and introduce enforcement measures amounting to Rs 300-400 billion for the fiscal year 2024-25.

The Finance Bill 2024 is set to strengthen the powers of the Directorate General of Digital Invoicing, part of the Federal Board of Revenue (FBR). This enhancement will help document the supply chains of all major businesses.

In preparation for these changes, the FBR has drafted a series of budget proposals to document the economy for the upcoming fiscal year.

Key Proposals of Finance Bill 2024

  1. Unified Registration Threshold: To eliminate discrimination, there is a potential introduction of a single turnover-based registration threshold for all businesses.
  2. Overseas Vendor Registration: The government may implement a regime requiring foreign suppliers of goods to Pakistani consumers to register and collect federal sales tax.
  3. Duty on Input Tax Claimants: A positive duty may be imposed on input tax claimants to ensure they are not involved in Missing Trader Fraud. Suspicious transactions must be reported, under the threat of penalties or prosecution.

The FBR has proposed uniform changes in the Sales Tax Act, Income Tax Ordinance, and Federal Excise Act.

According to sources, the FBR plans to increase withholding taxes for non-filers, specifically raising the tax on cash withdrawals from banks by non-filers from 0.6 percent to 0.9 percent. This change aims to generate an additional Rs 15-20 billion during the fiscal year 2024-25.

Sales Tax Adjustments

Supplies to unregistered persons would become more expensive for the business community as part of the government’s policy to penalize non-filers of income tax returns.

Currently, cash withdrawals over Rs 50,000 in a single day by non-filers through credit cards or ATMs are subject to a 0.6 percent withholding tax.

Personal Income Tax Structure

The current personal income tax rate structure has several issues. While the marginal income tax rate is largely progressive, it applies only to certain income types, causing inequities among taxpayers with different income sources,” sources explained.

The preferential tax rates for salaried individuals compared to non-salaried individuals can incentivize taxpayers to mischaracterize their income as employment rather than business. This creates administrative challenges in determining employer-employee versus customer-consultant relationships.

This issue extends to differences in final tax burdens on different income types under the current schedular system. Taxpayers may engage in tax planning and restructuring to benefit from more favorable tax categories, leading to economic inefficiency as resources are diverted into unproductive planning activities.

Leave a Reply

Your email address will not be published. Required fields are marked *