Your One Stop Guide to the Prime Minister’s Tax Reforms and Amnesty Scheme

The general consensus among Pakistanis when it comes to taxes is that the tax net needs to be broadened but lower the tax rates if the government seeks to increase revenue.

Out of 1.2 Million filers, only 700,000 pay taxes. These 700,000 are salaried people whose deduction is done at source as specified by the PM, Shahid Khaqan Abbassi. This means that there is not only a need to broaden the tax net but also a need to offer relief and incentivize the tax payment.

The realty sector of Pakistan has seen dullness partially due to the previous tax policies. The previous tax regime needed an overhaul. The new tax reforms and amnesty scheme were announced recently. Read on below to understand what it is and how it impacts you.

Summary

The most important changes are as follows:

  • 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 until 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 Tax Brackets

The idea behind the tax policy to encourage more and more people to pay taxes. The former 20 tax brackets (12 for salaried and 8 for self-employed people) have now been simplified into 4 categories and are as follows.

  • People who make less than PKR 1.2 million per annum will be exempt from taxes.
  • 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 PKR 4.8 million per annum will pay 15% income tax.

Amnesty Scheme

For the amnesty scheme announced by the PM, the details 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 a 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 until June 30, 2018.

Property Taxes

The reforms on the property taxes are as follows:

  • One percent ‘presumptive tax’ will be paid on any purchase of a 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 a value greater than PKR 4 million.
  • To curb the practice of underwriting the value of a 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.

The government will now monitor every financial transaction to ensure that there is no tax evasion. The punishments for tax evasion will now be decided by the parliament and notices will now be sent to those who don’t pay taxes and whose income is found to be beyond their stated income.

Now, only time will tell as to how this will impact the realty market and the economy of Pakistan. Will the non-filers remain non-filers and investment decrease or will they become filers? Stay tuned for more.

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