Budget insights 2024-25: corporate taxes

WEB DESK: The federal government announced the annual budget for fiscal year 2024-25 on Wednesday. Here is everything you need to know about corporate taxes on income and expenditures:

CAPITAL GAINS TAX

The government has proposed a new capital gains tax (CGT) rate on the sale of securities. Filers will now pay a flat 15% tax on capital gains from securities sales, while non-filers will be subject to standard tax rates with a minimum of 15% and a maximum of 45%.

Additionally, the capital gains tax on income from mutual funds and collective investment plans has been increased from 10% to 15%.

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DIVIDEND TAX

The proposed budget includes an increase in the dividend tax rate from 15% to 25% for mutual funds that earn 50% or more of their income from profit on debt.

EXPORT INCOME TAX

Income from exports will now be taxed at standard rates, with 1% of export proceeds treated as the minimum tax. Previously, 1% was considered the final tax liability for exporters.

ADVANCE TAX ON PROFIT ON DEBT

The advance tax rate on profit on debt for non-filers is proposed to increase from 30% to 35% to raise the cost of non-compliance.

The exemption from income tax and withholding tax in the FATA/PATA regions has been extended for another year, up to June 30, 2025.

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FEDERAL EXCISE DUTY (FED)

The Federal Board of Revenue (FBR) forecasts that new excise revenue measures will generate an additional Rs70 billion in taxes. The proposed measures include:

– Imposition of FED on acetate tow at Rs 44,000.
– Imposition of FED on nicotine pouches at Rs 1,200 per kg.
– FED at Rs 15 per kg on the supply of sugar to manufacturers.
– Increase in the FED rate on cement from Rs 2 per kg to Rs 3 per kg.
– FED on commercial properties and first sale of residential properties at 5%.
– Increase in the FED rate on filter rods from Rs 1,500 per kg to Rs 80,000 per kg.
– Enhancement of FED on e-liquids [vapes].
– Authority to seal business premises of retailers selling illicit cigarettes.
– Exemption from FED for diplomats and diplomatic missions.
– Increase in the price threshold for local manufactured cigarettes from Rs9,000 to Rs12,500.

CUSTOMS DUTY/REGULATORY DUTY

The government has imposed additional customs duty on 1,600 tariff lines, expected to raise Rs 40 billion in customs collection. The regulatory duty on imported used vehicles has been aligned with new cars, and concessions on hybrid car imports have been withdrawn.

On the recommendation of the Tariff Policy Board, the government has also imposed duties on the import of raw materials and semi-finished products to protect local industries. Customs duty exemptions on the import of fresh and dry fruits have been withdrawn, and concessions on electric vehicles valued above $50,000 have been reduced. Incentives have been offered for manufacturing solar panels and related equipment.

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WITHHOLDING TAX (WHT)

The scope of WHT has been expanded to include the entire supply chain for certain specified sectors. Previously, WHT was collected on sales to dealers, distributors, wholesalers, and retailers. Now, non-filer distributors, wholesalers, and dealers will pay 2% (up from 0.2%), and non-filer retailers will pay 2.5% (up from 1%).

DEFAULT SURCHARGE

The default surcharge rate, currently at 12%, will be increased to the Karachi Interbank Offered Rate (KIBOR) plus 3% per annum. This change aligns the default surcharge with prevailing market rates.