Taxes and their Socioeconomic Impact on the Nation
The Government of Pakistan has presented the federal budget for the Fiscal year 2024-25 on 12th June 2024. The latest budget imposed an increase in previous taxes and introduced new taxes for filers and non-filers while a new category was also introduced as late filers.
Federal budget 2024-25 also focused on raising taxes on sale and purchase of immovable property assets. Further, the increase in taxes on the salaried class and the business of imported and exported products also increases.
In this article, I will discuss about the new taxes imposed in the latest federal budget and try to figure out their impacts on the economy and nations as a whole.
Income Taxes in Budget 2024-25:
The Federal Government has imposed 35-45% taxes for the non-salaried class and Association of Persons (AOPs). While the Salaried class has to pay 35% tax the taxes have increased across the various income slabs.
The income tax increase according to annual income can be observed as below;
Individuals with income up to Rs. 600,000 per annum are exempted from income taxes. The tax rate increased from 7.5% to 15% for individuals having income Rs. 600,000-12,00,00 per annum. Individuals earning 12-16 lacs per year will have to pay 20% tax on their income, while for 16-24 lacs the tax rate is increased from 20% to 30%. Salaried class with annual income of 24-30 lacs will have to pay 30% income tax which was previously at 25%, while income tax also increased from 30% to 40% for people earning 30-40 lac annually. The tax rate is increased from 35% to 40% for individuals having income between 40-56 lacs and the income tax rate for income above 56 lacs is 45%.
Taxes on the Real Estate:
The tax rate has been revised for the real estate sector according to three categories of individuals, filers, late-filers and non-filers. The tax rate for these three categories will be imposed according to the following ratios;
| Assets Value | Tax rate for Filers | Tax rate for Late Filers | Tax rate for Non-Filers |
| Up to Rs. 50 million | 3% | 6% | 12% |
| Between 50-100 million | 3.5% | 7% | 16% |
| Over 100 million | 4% | 8% | 20% |
| Assets Value | Tax rate for Filers | Tax rate for Late Filers | Tax rate for Non-Filers |
| Up to Rs. 50 million | 3% | 6% | 10% |
| Between 50-100 million | 3.5% | 7% | 10% |
| Over 100 million | 4% | 8% | 10% |
Capital gain tax on Property:
The government has imposed a Capital gain tax for the filers and non-filers that is effected from July 1st, 2024. According to Federal Budget, 2024 15% CGT will be imposed on filers and 15-45% tax will be imposed for the non-filers on acquiring the property. Before this federal budget, CGT was applicable on the holding period of property for 1-6 years and after 6 years no CGT was to be paid on the property.
Changes in Sales Tax:
In the Federal Budget 2024-25 government withdrew the exemption of sales tax on various products and imposed a sale tax on these items. These items include edible vegetables and fruits imported from Afghanistan, Medical equipment and kits, charity hospital supplies, imports by non-profit organizations, and Stationery items.
The government revised the rate of sales tax on several products. The sales tax rate has been increased from 10% to 18% on LPG, 18% sales tax rate imposed on Hybrid Electric vehicles and medicaments. 18% sales tax on the standard mobile phones and 25% tax rate on mobile phone worth of more than US $500. Tax rate has also been increased from 5% to 10% on laptops and personal computers.
Impact of Taxes on Various Sectors:
- Salaried Individuals: The government has increased the tax rate on the salaried class according to various slabs we have discussed above. These taxes will put a huge burden on the salaried class and make it more difficult to fulfill their daily needs. Moreover, the rise in inflation and indirect taxes are already affecting their disposable income, in addition to this rise in income taxes will put immense pressure on the salaried class.
- Real Estate: The other sector which is effected by the huge taxes is the Real Estate sector. The government has increased the tax rate for the sale and purchase of the Property. The higher taxes for non-filers can discourage potential buyers from investing in the real estate sector. These taxes will also put downward pressure on the prices of the real estate sector, which will force sellers to adjust prices to attract buyers toward real estate, which may also cause activities in real estate to further slowdown. The higher taxes on non-filers will motivate buyers and sellers to deal with filers due to low taxes and transaction costs. Moreover, higher taxes on non-filers will encourage them to become filers to pay lower tax percentage, this will make transactions in the real estate sector more transparent through documentation of real estate assets. The government aims to bring more transparent and regularized framework by imposing higher taxes while targeting to collect more revenue from the real estate sector.
- Business and Corporate Sector: The Government has imposed several taxes on the business and manufacturing sectors. Exporter has to pay a minimum of 1% tax on exports. This will cause the exports to be more expensive and difficult for exporters to compete in the international market. Further, AOP and high-income salaried individuals with earnings of more than Rs.500 million have to pay approx. 60% tax due to additional and super taxes introduced by the government. The Government has also increased the sales tax on DAP fertilizers from 5% to standard 18%, that will increase the cost of production for farmers and agricultural products for households. Further, the tax rate of 10% has been imposed on cattle feed, poultry feed, sunflower oil, and canola seed meal, which were previously exempted from sales tax. This tax rate will increase the cost of poultry and dairy products for households. The FED on cement manufacturing has increased from 2% to 3% resulted in increase of Rs.1000/ton bringing the total FED to Rs.3000/ton. These taxes will increase the cost of the construction sector.
Social impact of taxes:
Previously exempt items from sales tax, such as specific medical and diagnostic kits along with stationery items, will now be subject to taxation, potentially leading to higher prices for these goods. As the government introduces measures to boost revenue by raising taxes and reducing exemptions, it is anticipated that the cost of living will increase.
Conclusion:
The 2024-2025 Pakistan Budget is aimed at stabilizing the economy and increasing government revenues, but its impact on employment and wages remains uncertain.
Higher taxes on businesses could potentially discourage investment in new projects, affecting job creation. Whether the budget can create a more resilient economic environment that fosters improved job opportunities and wage growth remains to be seen. The Pakistan Budget for 2024-2025 introduces significant reforms to boost tax revenues and enhance compliance. However, critical sectors such as health, education, and human development lack necessary reforms, presenting considerable challenges.
Non-salaried individuals and property owners will face a greater tax burden, reflecting the government’s focus on expanding the tax base. Stricter penalties for non-compliance highlight the government’s commitment to enforcement. The social and economic impacts will hinge on effective implementation and the broader economic landscape. Citizens and businesses must remain informed and adaptable. Long-term success will depend on maintaining transparency and fairness.
