Quick summary of the most important changes made under the announced package.
- CNIC numbers will be used as National Taxation Numbers (NTN) to monitor tax compliance.
- No taxes for people with annual income below PKR 1.2 million. Maximum of 15% taxes on annual income above PKR 4.8 million.
- Minimal penalties for declaring previously undeclared local or foreign assets under the amnesty scheme.
- Those who avail the scheme to declare assets will have a one-time exemption from accountability laws.
- The amnesty scheme can only be availed till June 30, 2018.
- FBR rates and DC rates expected to be abolished.
- Uniform property taxes will be collected on all property transactions throughout all provinces.
- Property tax rates will be reduced.
- The government will have the right to purchase any property after paying 100% more than its declared value within six months of its registration.
- Non-filers of taxes will not be able to purchase any property valued at greater than PKR 4 million.
- The government will monitor citizen’s financial records to catch tax evasion. The parliament will decide the appropriate penalties.
New income tax brackets
The Prime Minister stressed the need for paying taxes. He further explained that because direct taxes are not paid, indirect taxation increases, which is unfair on the public.
New income tax brackets will be instituted under the reform package. Formerly, there used to be 12 tax brackets for salaried people, and 8 for self-employed citizens. Now, they have been simplified into four categories. Following are the details of the new tax brackets. People earning less than1.2 million rupees per annum will be exempt from tax.
People making between PKR 1.2 million and PKR 2.4 million per annum will pay 5% income tax.
People making between PKR 2.4 million and PKR 4.8 million per annum will pay 10% income tax.
People making more than 4.8 million rupees per annum will pay 15% income tax.
Amnesty Scheme
The details of the amnesty scheme announced by the PM to bring assets into the tax net are as follows:
People who have undeclared income before June 30, 2017, can bring it in the tax net by paying a penalty of just 5%.
Foreign exchange can be brought back to the country by paying a 2% penalty.
Fixed assets, evaluated at the market value, but at no less than the cost of acquisition, will incur a penalty of 3%.
Foreign liquid assets – including cash, securities, and bonds – can be declared on 5% penalty.
Dollar account holders, who have purchased dollars from undeclared funds, can regularise them by paying a penalty of just 2%.
No questions will be asked about the source of funds for all remittances less than USD 100,000 per person per annum. They will not be taxed either. However, the Federal Board of Revenue (FBR) may scrutinise them.
Any new foreign exchange accounts can only be opened by tax filers.
People who partake in the amnesty scheme will have one-time exemption from accountability and other laws.
The amnesty scheme cannot, however, be availed by politicians or their families.
The scheme can only be availed till June 30, 2018.
Property Tax reforms
Property tax reforms, which was the fourth point stated by the Prime Minister can be broken down into the following points:
One per cent ‘presumptive tax’ will be paid on any purchase of property. However, the tax will be adjusted against the annual taxes of the tax-payers.
On the local and provincial level, a maximum of 1% tax has been recommended on registration of property.
At the federal level, meanwhile, Adjustable Advance Income Tax which is levied on property sale and purchase will be reduced to 1%.
The FBR rates will stand abolished from 1st July 2018, while provinces have also been requested to abolish DC rates.
Non-filers of tax returns will not be able to purchase any property of value greater than PKR 4 million.
To curb the practice of underwriting the value of property, the government will have the right to buy any property at double the declared value of the property, within six months of its registration.This will begin from the fiscal year 2019 and over the next two years, the rate will be reduced. In 2020, the government will have to pay 75% above the value, and in 2021, it will be 50% above the value to curb the practice of underwriting the value of property even further.
How will the government implement these reforms?
Finally, the government will now monitor all financial transactions to curb tax evasion, and notices will be sent to those who don’t pay taxes, but whose income is found to be beyond their stated income. They will be required to explain and justify their financial situation in such a case. Moreover, the penalties on tax evasion will be decided by the parliament.