Parliament on Sunday passed the amended federal budget for fiscal year 2023-24, increasing taxes on individuals earning income above Rs. 200,000/month as well as the registration of vehicles above 2,000cc in a last-ditch bid to revive the stalled $6.5 billion International Monetary Fund (IMF) program.
According to a wrapping up speech delivered earlier by Finance Minister Ishaq Dar, the government has imposed additional taxation measures of Rs. 215 billion, slashed total expenditures by Rs. 85 billion, withdrawn a proposed amnesty on foreign exchange inflows, and lifted all import restrictions. Additionally, the government has also increased its allocation for the Benazir Income Support Program by Rs. 16 billion and increase the maximum permissible petroleum development levy from Rs. 50 to Rs. 60/liter.
According to the new tax slabs, the tax rate would remain unchanged for salaried individuals earning between Rs. 1,200,000/year and Rs. 2,400,000/year at Rs. 15,000 + 12.5% of the amount exceeding Rs. 1,200,000. For income exceeding Rs. 2,400,000/year, but below Rs. 3,600,000/year, the tax rate has been increased by 2.5% to Rs. 165,000 + 22.5% of the amount exceeding Rs. 2,400,000/year.
For individuals earning between Rs. 3,600,000 and Rs. 6,000,000/year, the tax rate has been set at Rs. 405,000 + 27.5% of the amount exceeding Rs. 3,600,000. For earnings above Rs. 6,000,000/year, the rate of tax would be calculated at Rs. 1,095,000 plus 35% of the amount exceeding Rs. 6,000,000.
The amended finance bill has also increased income tax on non-salaried individuals and associations of persons. Under the revised slabs, taxable income between Rs. 600,000 and Rs. 800,000/year would be charged at 7.5% of the amount exceeding Rs. 600,000. For income between Rs. 800,000 and Rs. 1,200,000/year, the rate of tax would be calculated at Rs. 15,000 + 15% of the amount exceeding Rs. 800,000. For income between Rs. 1,200,000 and Rs. 2,400,000/year, the tax rate has been set at Rs. 75,000 + 20% of the amount exceeding Rs. 1,200,000.
Similarly, taxable income between Rs. 2,400,000 and Rs. 3,000,000/year would pay taxes of Rs. 315,000 plus 25% of the amount exceeding Rs. 2,400,000. Where income falls between Rs. 3,000,000 and Rs. 4,000,000/year, the rate of tax would be Rs. 465,000 + 30% of the amount exceeding Rs. 3,000,000. For taxable income above Rs. 4,000,000/year, the tax rate would be Rs. 765,000 plus 35% of the amount exceeding Rs. 4,000,000.
The government has also imposed a fixed tax on imported and locally manufactured vehicles over 2,000cc. The tax rate would be 6% of the value of a vehicle with an engine capacity between 2,001cc and 2,500cc, while it would be 8% of the value of a vehicle with an engine capacity between 2,501cc and 3,000cc. Vehicles above 3,000cc would be taxed at 10% of the value of the vehicle.
A key concern raised by economists and the general public over the new taxes is the government’s apparent unwillingness to expand the tax net, relying primarily on squeezing the salaried class and existing tax filers further. Authorities also told local media that while the maximum PDL had been increased, it would not be applicable on the public unless fuel consumption decreases even beyond its current depressed levels.