18 July 2023
Employment Tax
Impact: High
Summary
The Finance Bill 2023 was presented by the Federal Government in the National Assembly on June 9, 2023. After discussions in the Senate and National Assembly, the Government has passed the Finance Act 2023 (FA) with certain modifications and amendments to the Finance Bill.
The amendments made by the FA became effective from July 1, 2023. This document provides a summary of the significant aspects of the Act.
The Detail
New salary tax rates
The salary tax rates have been updated as follows:
| Sr No. | Taxable income | Tax year 2022-23 | Tax year 2023-24 |
| 1. | Less than / equal to Rs 600,000 | Rs. 0 | Rs. 0 |
| 2. | 600,000 to Rs 1,200,000 | 2.5% | 2.5% |
| 3. | Rs 1,200,000 to Rs 2,400,000 | 12.5% | 12.5% |
| 4. | Rs 2,400,000 to Rs 3,600,000 | 20% | 22.5% |
| 5. | Rs 3,600,000 to Rs 6,000,000 | 25% | 27.5% |
| 6. | Rs 6,000,000 to Rs 12,000,000 | 32.5% | 35% |
| 7. | Greater than Rs 12,000,000 | 35% | 35% |
New individual and AOP (Association of Persons) tax rates
| Sr No. | Taxable income | Existing Rate | New Rate |
| 1. | Less than / equal to Rs 600,000 | 0% | 0% |
| 2. | Rs 600,000 to Rs 800,000 | 5% | 7.5% |
| 3. | Rs 800,000 to Rs 1,200,000 | 12.5% | 15% |
| 4. | Rs 1,200,000 to Rs 2,400,000 | 17.5% | 20% |
| 5. | Rs 2,400,000 to Rs 3,000,000 | 22.5% | 25% |
| 6. | Rs 3,000,000 to Rs 4,000,000 | 27.5% | 30% |
| 7. | Rs 4,000,000 to Rs 6,000,000 | 32.5% | 35% |
| 8. | Greater than Rs 6,000,000 | 35% | 35% |
Taxation on Bonus Shares Reintroduced (Section 39, 236Z)
In the past, the definition of ‘income’ in section 2(29) excluded the face value of bonus shares for shareholders of a company. However, the Finance Act of 2014 introduced withholding provisions, implementing a separate ‘final tax’ on bonus shares issued by both listed and unlisted companies, while omitting the aforementioned exclusion from the income definition.
The FA reintroduces this tax measure by amending the definition of ‘income,’ expanding the scope of ‘income from other sources,’ and introducing a withholding tax provision, effective from July 1, 2023. The key features of the measures are as follows:
Advance Tax Inactive Taxpayer (Section 231AB)
The Federal Board of Revenue reintroduced adjustable advance tax on cash withdrawals by Inactive Tax Payers through an amendment. The tax rate is set at 0.6% when the cumulative amount of cash withdrawals in a single day exceeds Rs 50,000. This will have a considerable impact on those who do not file their tax returns in time.
Super Tax – Progressive rates on high-earning persons (Section 4C, 147)
In the Finance Act of 2022, the concept of Super Tax was introduced for high-earning persons, to be paid when filing their tax returns. Slab-wise (progressive) rates were established for the 2022 tax year, with a maximum rate of 4%. Certain specified sectors had an enhanced rate of 10% for the 2022 tax year only, while banking companies were subject to a 10% super tax for the 2023 tax year.
The Constitution Petitions were filed in various High Courts challenging the retrospective application of the super tax for the 2022 tax year and the enhanced rate for specified sectors. The High Court of Sindh ruled that the super tax was not applicable for the 2022 tax year, and the enhanced rate for specified sectors exceeding 4% was deemed discriminatory and ultra vires. This decision is currently under review by the Supreme Court.
The Finance Bill of 2023 proposes new slab rates for super tax, targeting taxpayers with income exceeding Rs 300 million. The updated slab rates are as follows:
| Sr. No. | Income taxable under Section 4C | Tax Year 2022 | Tax Year 2023 |
| 1 | Income up to Rs. 150 million | 0% | 0% |
| 2 | Rs. 150 million to 200 million | 1% | 1% |
| 3 | Rs. 200 million to Rs. 250 million | 2% | 2% |
| 4 | Rs. 250 million to Rs. 300 million | 3% | 3% |
| 5 | Rs. 300 million to Rs. 350 million | 4% | 4% |
| 6 | Rs. 350 million to Rs. 400 million | 4% | 6% |
| 7 | Rs. 400 million to Rs. 500 million | 4% | 8% |
| 8 | Income exceeding Rs. 500 million | 4% | 10% |
Advance Tax on Foreign Domestic Workers (Section 231C)
A new provision for advance tax has been introduced for the employment of foreign nationals as domestic workers. Under this provision any authority issuing or renewing domestic aide visa to any foreign national as a domestic worker at the time of issuing or renewing such visa shall collect from the agency, sponsor or the person as the case may be, employing the services of such foreign national a tax of two hundred thousand rupees.
The tax collected or collectible under this section shall be adjustable advance tax for the tax year to which it relates on the income of such agency, sponsor or a person, as the case may be, employing the services of such foreign national.
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