Finance Minister Muhammad Aurangzeb on Monday announced in the National Assembly three new taxes aimed at offsetting the revenue impact of offering tax relief to low-income individuals.
In his winding-up speech ahead of a vote on the federal budget for FY2025-26, Aurangzeb said the proposed measures sought to offset the revenue loss from the tax relief while also protecting the industrial and commercial sectors.
Following criticism from lawmakers, the federal government has agreed to reduce the income tax rate for salaried individuals earning between Rs. 600,000 and Rs. 1.2 million annually to 1% from the earlier proposed 2.5%. The minister noted the reduction was on the instructions of Prime Minister Shehbaz Sharif.
To make up the shortfall, the government has proposed raising the tax rate on income derived from the debt portion of dividends issued by mutual funds to companies from 25% to 29%. Additionally, it has proposed a 20% tax on profits earned by corporations and companies through investments in government securities. A third new proposed measure is imposing a federal excise duty (FED) of Rs. 10 on one-day-old chicks to ensure the poultry industry contributes its due share to national revenue.
During his speech, Aurangzeb clarified that a proposed tax on pensions did not to commutation and gratuity amounts. He also clarified that there would be no changes in the taxation of voluntary pension scheme. He said the tax would only apply to individuals receiving annual pensions exceeding Rs. 10 million, while pensioners above 75 years old are entirely exempt from any form of taxation.
The finance minister said the government had also reassessed the Federal Board of Revenue (FBR)’s powers related to tax fraud in line with proposed amendments in the Finance Bill. Under the revised framework, tax fraud cases are now classified as either ‘cognizable’ or ‘non-cognizable.” Cases involving alleged tax fraud of up to Rs. 500 million would require a court-issued warrant for arrests. Any arrest for tax fraud also requires the accused to deliberately fail to respond to three official notices or attempt to evade investigation or be accused of record tampering. Any individual taken into custody would have to be presented before a special judge within 24 hours.
Further, Aurangzeb confirmed that the proposed sales tax on solar panels had been reduced to 10%, adding this would apply to only 46% of imported components, resulting in a mere 4.6% increase in the overall price of imported solar panels.
In his winding up speech, the finance minister noted that the presented Finance Bill had proposed curbs on large asset purchases by undocumented individuals. These restrictions, he said, would not apply to residential properties valued up to Rs. 50 million, commercial plots or properties up to Rs. 100 million, and vehicles priced up to Rs. 7 million. Similarly, capital gains tax would not be levied on the sale of property held for more than six years, provided the asset was acquired before July 1, 2024. Such properties would be subjected to 4.5%-6% withholding tax on purchase. Property in personal use for 15 years or more would not be subject to this withholding tax.