The Finance Bill 2022 has been the topic of discussion among the Pakistani public, particularly business owners and taxpayers. The Federal Board of Revenue (FBR) and budget makers have recently made amendments to the bill, which may have a significant impact on various sectors of the economy. In this article, we will review some of the significant changes proposed in the amended Finance Bill 2022.
Reduced Sales Tax on Active Pharmaceutical Ingredients (APIs)
The amended bill proposes a reduction in the sales tax on the import of active pharmaceutical ingredients (APIs) from 17% to only one percent, while continuing the zero-rating scheme on local sales. This change is expected to benefit the pharmaceutical industry, which has been grappling with increased costs due to the high sales tax rate.
Reduction in Capital Value Tax on Vehicles
The Capital Value Tax (CVT) on vehicles has been reduced from two percent to one percent. This change is expected to lower the burden on car owners, especially those purchasing vehicles in the higher price range. The reduction in CVT is also expected to encourage vehicle sales, which have been declining in recent years.
Exemption from Capital Gain Tax for Allotted Plots
The budget initially removed the provision of a reduction in Capital Gain Tax (CGT) for those who had been allotted plots while in service. However, this provision has now been restored. Furthermore, families of war wounded and martyrs will be exempt from tax on income from plots.
Amendment in the Definition of Tax on Deemed Income
The proposed amendment in the definition of tax on deemed income, under section 7E of the Income Tax Ordinance 2001, is aimed at avoiding litigation in courts. The redrafted definition imposes tax at the rates specified in Division VIIIC of Part-I of the First Schedule on the income specified in this section for tax year 2022 and onwards.
The new definition also states that a resident person shall be treated to have derived as income chargeable to tax under this section an amount equal to five percent of the fair market value of capital assets situated in Pakistan. However, certain capital assets are excluded from this definition.
Changes in the Definition of Resident Person
The definition of Resident Person under section 182 has also been modified. A new clause has been added to include “(d) being a citizen of Pakistan who during the tax year is present in any other country for less than 183 days or who is not a tax resident of any other country.”
Conclusion
In conclusion, the amended Finance Bill 2022 has made significant changes that will affect various sectors of the economy. The reduction in sales tax on APIs and CVT on vehicles is expected to benefit the pharmaceutical and automotive industries, respectively. The restoration of the provision of a reduction in CGT and exemption from tax on income from plots for families of war wounded and martyrs will provide relief to certain individuals. The proposed amendment in the definition of tax on deemed income and the modification in the definition of Resident Person are aimed at avoiding litigation in courts and providing clarity to taxpayers. It is imperative for taxpayers to keep themselves updated on these changes and plan their finances accordingly.
