Budget 2021-22: What is Cheaper and what will Cost More?

One thing was evident when the administration presented the Budget 2021-22 to the National Assembly on Friday: the government wanted to appease as many people as possible. 

Prime Minister Imran Khan had claimed earlier that the budget would make “everyone happy,” and the tax cuts for a variety of industries seem to reflect that feeling.

The withholding tax rates card includes exemptions and relief measures in the budget for practically all industries. The number of new enterprises and items brought into the tax net appeared to be significantly less in comparison. Tax concessions for compact automobiles and four-wheelers benefited the motor industry significantly.

However, federal excise duty (FED) on cellular services and e-cigarettes was not all good news for the standard customer.

Withholding Tax Rates Card in Pakistan 2020-21

This Withholding Tax Rates Card is merely an attempt to provide a quick reference and assist all Withholding Tax Regime stakeholders. It includes guidelines for taxpayers, tax collectors, and withholding agents. The original statute (Income Tax Ordinance, 2001, as amended) shall continue to apply.

In the situation of any discrepancy in this document, it will always take precedence. The withholding tax rates card shall not be used as a legal document in any court or legal forum, nor shall it be utilized in any statutory proceeding. Let us take a look at the new changes under the withholding tax rates card.

Salary Income 

Every individual in charge of paying an employee’s salary must withhold tax from the amount paid. 

Slabs of Pay:

  • If the taxable income is less than PKR 600, 000 the tax rate is 0 percent.
  • When taxable income surpasses a limit of PKR 600 000 but not more than PKR 1,200,000, the tax rate is 5 percent of the sum exceeding PKR 600 000.
  • When taxable income exceeds a certain threshold of PKR 1,200,000, but not more than PKR 1,800,000, so the tax rate is PKR 30,000 plus a 10% bonus, a sum greater than PKR 1.2 million.
  • When taxable income exceeds a limit of PKR 1,800,000, but not more than PKR 2,500,000, the tax rate is PKR 90,000 plus 15% of any amount above PKR 1,800,000. 
  • When taxable income exceeds a certain threshold of PKR 2,500,000, but not more than PKR 3,500,000, the tax rate is PKR 195,000 plus 17.5 percent of the total, a sum more than PKR 2,500,00.
  • If the taxable income is more than PKR 3,500,000 but not more than PKR 5,000,000, the tax rate is PKR 370,000 plus 20% of any sum above PKR 3,500,000. 
  • When taxable income exceeds a certain threshold of PKR 5,000,000, but not more than PKR 8,000,000, the tax rate is PKR 670,000 plus 22.5 percent of any amount above PKR 5,000,000

 Cocoa Paste and Butter 

The government will decrease the regulatory charge on cocoa paste, butter, and powder imports. It could result in a price drop for chocolate and other baked items. If you enjoy indulging, it will almost certainly cost you less — at least financially. 

Taxes for Automobiles 

Car prices in budget 2021-22 in Pakistan will face a new phase of changes. Let us take a look at them one by one.  

Small Cars

Nationally manufactured cars with an engine capacity of 850cc or less would be free from VAT or value-added tax, and there will be a decrease in the sales tax from 17 percent to 12.5 percent. In addition, four-wheelers will be free from federal excise taxes. So, if you are planning to buy a new bike for yourself, it will be a lot less expensive than you assumed. 

Electric Vehicles

Electric car imports would be exempt from VAT, but nationally built electric vehicles will be subject to a 1% sales tax.  

Introduction of “On Money” Tax 

The government would also levy an “on the money” tax on automobiles sold without being registered. “On money” or premium refers to a practice in which anxious purchasers with extra funds pay a premium to auto dealers in exchange for immediate delivery rather than waiting months. 

Mobile Services

The federal excise duty on longer-than-three-minute mobile phone calls has been set at PKR 1 per call, PKR 0.1 per SMS, and PKR 5 for every GB of internet usage. According to the budget document, the move is being made to “reap appropriate revenue” from the telecom sector. It would result in moderate taxation on a broad spectrum of the citizenry. 

Hours after the budget presentation, Energy Minister Hammad Azhar disputed that the FED would be applied to internet data, claiming that the prime minister and federal cabinet had not authorized it. 

E-Cigarettes

E-cigarettes, or electronically heated tobacco products, will be taxed as well.  

Telecommunication

The federal excise duty on telecommunications will be cut by 1 percent from the previous rate of 17 percent. There will be a decrease of 3 percent in the telecommunications withholding tax (WHT).

Fruit Juices 

This summer, staying hydrated will cost you less. The budget document stated that the fruit juice industry was in an “adverse situation” due to the global pandemic and that fruit juice costs had risen due to the government excise charge. The FED on fruit liquids will be phased down in FY22. 

Banking 

Cash withdrawals and non-cash banking activities will no longer be subject to a withholding tax.

Electricity 

Domestic users not on the Active Taxpayers List (ATL) will have their withholding tax on monthly electricity bills cut from PKR 75 000 to 25 000. It means that if a customer’s power bill is PKR 25 000 or more and they are not on the ATL, they will be subject to withholding tax.

 Air Travel 

Domestic air travel will no longer be subject to a withholding tax. It could lead to the promotion of domestic plane travel because the citizens prefer traveling by train or by road.

FBR to Consider Proposals 

There is a proposition under consideration that either salary tax rates are cut or budget deductible allowances are granted. To reduce litigation, the FBR explores a paradigm change in which various offers would be made to taxpayers to settle disputes by paying 20 percent to 50 percent of the total amount involved at various points of the appeals process. 

According to official statistics, the FBR only collects a small percentage of withholding taxes in some instances. The FBR discovered that out of the total amount of taxes, about 7 to 10 withholding taxes amounted to 85 percent collection. 

To ensure ease of doing business in Pakistan, the FBR has collected a significant amount in withholding taxes in the current fiscal year. The board is considering abolishing nearly half of the current withholding tax. The FBR now plans to eliminate any withholding taxes that are generating delays and expense escalation. 

The FBR generated a large portion of withholding taxes from imports, salaries, dividend income, and payments to non-residents, payments for goods, services, and contracts, exports, electricity consumers, income from property, cash withdrawals from banks, and purchase/transfer of immovable property, among other things, according to the tax machinery’s analysis. So far, the FBR has collected Rs400 billion in import duties. 

There may come a 0.25 percent decrease in the withholding tax rate for distributors to bring distributors into the tax net. For the upcoming five years, there is a plan to exempt waste management from income tax and GST. For five years, the government intends to provide tax benefits to Special Economic Zones (SEZ).  

Conclusion 

These proposed changes in the budget 2021-22 shall have a lasting impact on the economy, and the expectations are all good. It is quite early to predict how far the government would go with the exemption of taxes, but it seems like they are willing to go to any lengths to cater to the everyday citizen.