Pakistan’s president signs Finance Bill 2024-25 amid inflation and IMF loan talks; Govt introduces new taxes

Pakistani President Asif Ali Zardari signed the Finance Bill 2024-25 into law, with the new budget taking effect from July 1, marking the start of the new fiscal year.

The bill was passed by Parliament on Friday, amid inflation projections of up to 13.5 percent for June and ahead of critical negotiations with the International Monetary Fund (IMF) for an $8 billion loan to prevent a debt default in Pakistan, South Asia’s slowest-growing economy.

The national budget, presented on June 12, sets a challenging tax revenue target of 13 trillion rupees ($46.66 billion) for the new fiscal year, a 40 percent increase from the current year, to bolster Pakistan’s case for a new IMF rescue deal. The budget aims for “sustainable and inclusive growth,” with annual consumer price inflation projected between 12.5 percent and 13.5 percent for June 2024, up from 11.8 percent in May.

New Taxes

Direct taxes are set to increase by 48 percent and indirect taxes by 35 percent over revised estimates of the current year. Non-tax revenue, including petroleum levies, is expected to rise by 64 percent. The tax on textile and leather products, mobile phones, and capital gains from real estate will also increase, while workers face higher direct income taxes.

Meanwhile, the government has introduced new tax measures and extended exemptions in specific sectors to meet the International Monetary Fund’s criteria for generating additional revenue. Finance Minister Muhammad Aurangzeb announced these measures in the National Assembly on Friday.

Key changes include introducing a capital value tax on property in Islamabad and new taxes on builders and developers. The amended Finance Bill 2024, presented on June 12, reduces the Petroleum Development Levy on diesel and petrol from Rs80 to Rs70 per liter but increases it from the current Rs60.

Duty on air tickets

The Federal Excise Duty (FED) on air tickets will see significant increases, effective from July 1. Economy and economy-plus foreign travel tickets will face a 150% hike, while other classes will see a 40% rise. Exporters will now pay the standard corporate tax rate of 29%, up from the previous 1% tax on export turnover, and individuals earning over Rs10 million annually will be subject to a 10% income tax surcharge.

Tax on packaged Milk

The cost of packaged milk has surged dramatically as the federal government’s pro-IMF budget imposed an 18 percent sales tax, according to reports. Despite the Senate Standing Committee on Finance rejecting the proposal, the government proceeded with the decision, which will put an additional burden on the masses.

Reduced tax rates for hybrid vehicles

The government has extended reduced tax rates for hybrid vehicles until June 30, 2026, and increased the FED on cement to Rs4 per kg. Sales tax benefits for the erstwhile FATA/PATA regions have been extended for another year. New exemptions include sales or transfer of immovable property for certain service members and personnel, and the import of specific medical supplies and bovine semen.

Tax on farmhouses and homes

The Finance Bill also introduces a capital value tax on farmhouses and residential homes in Islamabad and a new tax on the construction and sale of various properties.

Farmhouses within the geographical borders of the Islamabad Capital Territory (ICT) would be subject to a CVT rate of Rs500,000 for areas ranging from 2,000 square yards to 4,000 square yards. The CVT will be Rs1 million where the space surpasses 4,000 square yards.

The CVT fee for residential houses inside the territorial borders of the ICT is Rs1,000,000 for areas ranging from 1,000 sq. yards to 2,000 sq. yards, and Rs1,500,000 for areas above 2,000 sq. yards. The government has also introduced a new tax on the construction and sale of residential, commercial, or other buildings and the development and sale of residential, commercial, or other plots.

Lawmakers give themselves a raise

Through an amendment to the Finance Bill 2024, the National Assembly also approved an amendment regarding increase in the perks and privileges of lawmakers, with a majority vote. The amendment had been moved by Abdul Qadir Patel of the PPP and it was opposed by the opposition members belonging to the PTI.

Through the amendment, the power of the federal government to determine the salaries and perks and privileges of parliamentarians has transferred to the respective finance committees of the house.

According to the amendment, the travel allowance of MNAs has been increased from Rs10/km to Rs25/km. It has been declared that unutilised air tickets of members will not be cancelled and would remain valid for another year.

Opposition parties reject budget

Opposition parties, including those aligned with jailed former Prime Minister Imran Khan, and major trade bodies have rejected the budget, citing concerns over high inflation and potential industry shutdowns. Pakistan’s central bank has also warned of inflationary effects due to the limited progress in broadening the tax base.

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