Govt indefinitely extends war on terror tax
The government has indefinitely extended a super tax being charged from the banks while also giving sweeping income tax concessions to local and overseas Pakistanis on their investments in the realty sector and the government debt through digital accounts.
These measures have been enforced with effect from February 12 through a presidential ordinance -the second in the past three weeks. Last month, the government also promulgated the construction sector tax amnesty scheme ordinance. According to the ordinance, the 4% super tax has been extended indefinitely through an amendment. This tax was introduced for the first time in 2015 for only a year after the Pakistan Army launched Operation Zarb-e-Azb against militants in the tribal areas.
The purpose of the super tax was to raise funds for fighting war against terror and rehabilitate temporarily displaced persons. After numerous extensions, the 4% tax lapsed in December 2020. The government has also imposed income tax on profits earned by resident Pakistanis on their foreign currency accounts. It has also slapped Rs50,000 to Rs200,000 income tax on sale of a newly bought car within three months of its purchase to discourage profiteering.
It has also introduced sweeping tax concessions for people investing in the Naya Pakistan Certificate -a debt instrument launched to raise funds for stabilizing foreign exchange reserves. The tax concessions are over and above highly lucrative profit rates paid to the investors.
The government has reduced the income tax rate to just 10% on profits made by investing through Foreign Currency Value Account (FCVA) or a non-resident Pakistani Rupee Value Account (NRVA). The existing rate was 15%. The PTI government has launched the Naya Pakistan Certificates through the Roshan Digital Account (RDA). So far, around $460 million have been invested in these accounts.
The government has announced to pay from 5.5% on three-month certificates to 7% interest rate on investment in five years maturity certificates in US dollar terms.
On rupee-denominated certificates,
the interest rates are in the range of 9.5% to 11%.
It has also reduced income tax rates on profits earned by overseas Pakistanis as well as locals on purchasing property through digital accounts. As against the existing rates of 1% to 4% on selling and purchase of property and 2.5% to 15% capital gains, the government has reduced the rates to "approximately 2% of the value of property", according to a commentary on the presidential ordinance by the Tola Associates.
"This fixed tax regime is a discrimination against local buyers and sellers of immovable property and the regime may also be used as a tool to whiten the black money as fictitious capital gains may be booked as was done through earlier fixed tax regime," said Ashfaq Tola -a leading tax consultant.
Tola said if such transactions are done by a resident individual, he would have been charged significantly higher tax on capital gains. The government has also exempted the non-resident Pakistanis from filing the income tax returns.
They will also be exempted from the requirement of being on the active taxpayer list for availing benefits of reduced income tax rates. The nonresident Pakistanis investing through digital accounts will also be exempted from all types of banking transaction related taxes. The government has also imposed fixed tax on locally manufactured motor vehicles that are sold within 90 days of delivery of such vehicles. This tax is adjustable and is applicable till June 30, 2021 only.