Employment Tax
Pakistan | Finance bill 2024-25 summary
Summary
This bulletin provides an overview of the main employment and income tax measures proposed in Finance Bill 2024, which currently awaiting approval from the National Assembly and subsequent Presidential assent.
The Finance Bill 2024 proposes measures to optimize revenue collection, simplify tax administration and redistribute the tax burden, affecting both salaried and non-salaried individuals. If approved, the legislation will be enforced from July 1, 2024.
The detail
Increase in tax rates for salaried and non-salaried individuals
The Finance Bill introduces revisions to the tax slab rates for salaried and non-salaried individuals. While the maximum tax rate for salaried individuals remains unchanged at 35%, adjustments have been made within various brackets. Conversely, the maximum rate for non-salaried individuals will increase from 35% to 45%.
The following tables detail the proposed new tax bands and rates for both salaried and non-salaried individuals:
| Salaried individuals | |||||
| Current tax bands and rates | Proposed tax bands and rates | ||||
| Taxable income (Rs) | Tax rate | Taxable income (Rs) | Tax rate | ||
| 0 | 600,000 | Tax exempt | 0 | 600,000 | Tax exempt |
| 600,000 | 1,200,000 | 2.5% | 600,000 | 1,200,000 | 5% |
| 1,200,000 | 2,400,000 | 12.5% | 1,200,000 | 2,200,000 | 15% |
| 2,400,000 | 3,600,000 | 22.5% | 2,200,000 | 3,200,000 | 25% |
| 3,600,000 | 6,000,000 | 27.5% | 3,200,000 | 4,100,000 | 30% |
| 6,000,000 | 35% | 4,100,000 | 35% | ||
| Non- salaried individuals | |||||
| Current tax bands and rates | Proposed tax bands and rates | ||||
| Taxable income (Rs) | Tax rate | Taxable income (Rs) | Tax rate | ||
| 0 | 600,000 | Tax exempt | 0 | 600,000 | Tax exempt |
| 600,000 | 800,000 | 7.5% | 600,000 | 1,200,000 | 15% |
| 800,000 | 1,200,000 | 15% | 1,200,000 | 1,600,000 | 20% |
| 1,200,000 | 2,400,000 | 20% | 1,600,000 | 3,200,000 | 30% |
| 2,400,000 | 3,000,000 | 25% | 3,200,000 | 5,600,000 | 40% |
| 3,000,000 | 4,000,000 | 30% | 5,600,000 | – | 45% |
| 4,000,000 | – | 35% | |||
Changes in withholding tax in the case of unlisted company shares
The finance bill proposed to amend sub-section 37(6) of the Income Tax Ordinance, 2001 in which as per existing sub-section a person acquiring shares of a Pakistani unlisted company was obliged to deduct adjustable advance tax from the gross amount paid as consideration for the shares at the rate of the 10% of the FMV of shares. Currently, this withholding tax is applied when payments are made, consistent with capital gains charging and computational rules.
Proposed amendments suggest advancing the deduction of this advance tax to occur at the earlier of:
A penalty is proposed for individuals who fail to remit the tax either at the time of share payment or registration. Such individuals would incur a penalty equal to 50% of the tax amount due.
Tax Rates on the Disposal of Securities
Presently, tax rates for capital gains on the sale of listed shares and other securities are determined according to the duration they are held. The bill seeks to make changes in the rate of tax on capital gain on disposal of securities.
Proposed tax rates for securities acquired on or after July 1, 2024, are structured as follows:
| Persons appearing on the Active Taxpayers List (ATL)
on the date of acquisition and disposal of securities | Persons (Individuals) not appearing on the Active
Taxpayers List (ATL) on the date of acquisition and disposal of securities |
| Flat rate of 15% | Higher of 15% or slab rates as specified in
Division I of Part I to the First Schedule |
The taxation of the following remains unchanged:
1. For securities acquired between July 1, 2022, and June 30, 2024, the taxation of capital gains will adhere to the following rates:
|
Holding period |
Rate |
| Less than 1 year | 15% |
| From 1 year to 2 years | 12.5% |
| From 2 years to 3 years | 10% |
| From 2 years to 4 years | 7.5% |
| From 4 years to 5 years | 5% |
| More than 6 years | 0% |
2. Capital gains on securities acquired before July 1, 2013, will remain exempt from taxation.
3. Securities acquired between July 1, 2013, and June 30, 2022, will continue to be taxed at the unchanged rate of 12.5%.
Tax Rates on Capital Gains from Mutual Funds or REITs
The Finance Bill has proposed the following withholding tax rates for individuals on capital gains from the Mutual Funds, collective investment scheme or REIT scheme:
| Persons | Current Tax Rates | Proposed Tax Rates |
| Individuals | 10% for stock funds
10% for other funds | 15% for stock funds
15% for other funds |
However, no tax will be withheld if the holding period of the securities acquired on or before 30 June 2024 is more than six years.
Further, in case of stock funds, if the dividend receipts of the fund are less than capital gains, the tax deduction is proposed to be at 20% against the current rate of 12.5%.
Tax Rates on Dividend Income
The rates of tax on dividend, including dividends received from mutual funds remains unchanged for the Tax Year 2024. However, the Bill proposes to tax dividend received from a mutual fund deriving 50% or more of its income through profit on debt at 25%.
Declaration of Foreign Assets
The Finance Bill requires all resident individual taxpayers having foreign assets to declare such amounts in their wealth statements irrespective of any monetary threshold.
Restriction on Foreign Travels for Non-Filers
In order to further broaden the tax base, the bill seeks to restrict foreign travel of non-filers from the country except for the holders of the National Identity Card for Overseas Pakistanis (NICOP), minors, students, and other specified classes of persons as notified by the Federal Board of Revenue.
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Further information on Vialto Partners can be found here: www.vialtopartners.com
Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.
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