Pakistan Tightens Tax Regime: New “Late Filer” Category, Property Withholding Tax Slabs, and Exporter Tax Changes

The government has introduced significant changes to its income tax system through the Finance Bill 2024. These measures aim to encourage timely tax filing, increase revenue collection, and potentially shift investment patterns.

New “Late Filer” Category:

Previously, taxpayers were classified as either “Filers” or “Non-Filers.” The new “Late Filer” category introduces a penalty for individuals and associations of persons (AOPs) who fail to submit their tax returns by the deadline (typically September 30th). Late filers will face higher tax rates compared to regular filers.

Important Update: The tax rates of Late Filers are applicable from July01, 2024. So any taxpayer who filed Tax Return after 31st October, 2023 is a Late Filer Now

The concept of immediate Active Tax Filer is no more.

What are Filers and Non-Filers?

  • Filers: Individuals or AOPs who register with the Federal Board of Revenue (FBR) and submit their annual income tax returns within due dates.
  • Non-Filers: Individuals or AOPs who haven’t registered with the FBR or haven’t filed their tax returns.

Becoming a Filer:

Benefits of being a Filer include potentially lower tax rates, easier access to loans and financial services, and avoidance of the “Late Filer” penalty. Here’s how to become a filer:

  • Obtain a National Tax Number (NTN) from the FBR.
  • Register online on the FBR website.
  • File your income tax return annually by the deadline.

Withholding Tax Slabs for Property Transactions:

The new budget introduces tiered withholding tax rates for property transactions based on the property value and filer status. This means filers will pay a lower withholding tax compared to late filers or Non Filers.

Impact on Investment:

The flat 15% tax rate on capital gains from property sales (regardless of holding period) for acquisitions after July 1, 2024, might discourage investment in real estate. This could potentially shift surplus funds towards bank schemes or the stock market, which could benefit other sectors of the economy.

Exporters and Tax Changes:

The previous system offered a final tax regime for exporters, where a 1% tax deducted by banks on export proceeds concluded their tax liability. The new proposal suggests taxing exporters at the normal rate, potentially increasing their tax burden. This could face criticism from the export sector already grappling with higher energy costs compared to regional competitors.

Overall, the Finance Act 2024 aims to:

  • Encourage timely filing of tax returns by penalizing late filers.
  • Increase tax revenue through stricter enforcement and revised tax rates.
  • Potentially influence investment patterns by making real estate less attractive compared to other options.

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