Government Eyes Rs. 1.3 Trillion Additional Tax Collection Next Fiscal Year

The government is planning to increase reliance on withholding taxes in the coming budget (2024-25) to take additional taxation measures of Rs. 1.2 trillion to Rs. 1.3 trillion from 2024-25.

Proposed Measures:

  • Increase rates of withholding taxes on financial transactions of non-filers and increased tax rates on buying/selling of immovable properties, registration of vehicles, and revision in income tax slabs for salaried class
  • Increase advance income tax on the import of machinery by 1 percentage point, having a revenue impact of Rs. 2 billion per month
  • Increase advance income tax on the import of raw materials by industrial undertakings by 0.5 percent, with an expected collection of Rs. 2 billion per month
  • Increase advance income tax on the import of raw materials by commercial importers by 1 per cent having a revenue impact of Rs. 1 billion per month
  • Increase withholding tax on supplies by 1 percent, expected collection of Rs. 1 billion per month
  • Increase withholding tax on services by 1 percentage point, expected collection of Rs. 1.5 billion per month, and increase withholding tax on contracts by 1 percent having a revenue impact of Rs. 1.5 billion per month
  • Increase the withholding tax on cash withdrawals from banks by non-filers from 0.6 percent to 0.9 percent

IMF Recommendations:

  • Reduce the number of income tax slabs for salaried individuals
  • Increase the tax burden on the salaried class and businesses
  • Increase the FBR’s tax-to-GDP ratio to 10 percent in FY25, with a target of around Rs. 12.3 trillion

Government’s Plan:

  • Repeal remaining exemptions for donations and non-profit organizations contained in the Second Schedule (Exemption Schedule) of the Income Tax Ordinance
  • Make them eligible for tax credits
  • Review the charitable donations tax credit, as well as the credit for certain persons, to assess whether changes to eligibility requirements would be desirable
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