Karachi, June 30, 2022 (PPI-OT): Pakistan Budget’23: Finance bill amendment – None too surprised

With virtually no resistance from the opposition, the federal government on Wednesday managed to get amendments in the Finance Bill 2022 approved through the National Assembly that allows GoP to shore up its tax collection targets, thereby bringing the country closer to successfully reviving the stalled International Monetary Fund (IMF) program. Most of these amendments were already anticipated by the street, so the new document carried little surprise. Initially, the government had avoided taking unpopular tax measures for fear of political backlash, however, the original budget failed to get the nod from IMF, forcing the government to roll back several relief measures.

Revision in PDL ceiling:

The biggest development in the NA session today was the approval of revision in PDL limit to PkR50/ltr (from PkR30/ltr), one of the major demands by IMF, allowing the government to meet its collection target of PkR750bn under this head. However, as Finance Minister himself said, GoP will likely increase PDL collection in a staggered manner where we expect the average PDL collection throughout FY23 will likely settle around PkR37/ltr – PkR40/ltr.

Corporate Taxation:

The law makers also approved a super tax (previously poverty alleviation tax) of 1% to 4% on annual incomes between PkR150mn to PkR300mn. Moreover, imposition of 6% “additional super tax” on large-scale industries was also approved. As per our understanding, this will take the effective tax rates for the corporates to 39% (for banks the effective tax rate will be 49%) during tax year 2022, while, the effective tax rate will likely ease off to 33% (while for the banks the effective tax rate will settle ~43% from next year) from the next year.

Revision in PIT:

An amendment to take back the relief provided to the salaried class was also approved. Under the new rates, no tax will be imposed on those earning less than PkR0.6m per annum, whereas the effective tax rates on the higher income brackets was gradually increased. While carrying negative repercussions for the disposable income of salaried classes, this move will help shore up tax collection significantly. The revision in PIT brackets was a major demand by the IMF, however, owing to the political costs it carries, the GoP had been coy on this demand but had to eventually cave in to fund’s demands.

Taxing the retailers:

There are an estimated 9mn retail shops in Pakistan who contribute little to the total tax collection and the government wanted to bring 2.5m to 3.0m of these retailers into the tax net through fixed presumptive tax regime, depending on their level of energy consumption. The national assembly session today approved the fixed rates of taxation on these retailers with slight adjustments in the original draft. The new draft also encourages these retailers to become tax filers as the penalties for non-filing have been approved as well.