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10% super tax to stay in the upcoming fiscal year

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Contrary to its promise to the business community, the government has no plans to repeal the 10% super tax imposed on the wealthy in the upcoming fiscal year. The Reform Commission has also recommended collecting this tax in advance from the public.

Sources within the Federal Board of Revenue (FBR) informed The Republic policy that there is currently no proposal to withdraw the 1% to 10% tax imposed on affluent individuals and companies. However, they added that the final decision rests with the political leadership, which initially assured that the super tax would only be imposed for one fiscal year 2022-23, concluding on June 30th.

The Reforms and Revenue Mobilisation Commission (RRMC) has recommended incorporating the super tax into Section 147 of the Income Tax Ordinance and collecting it in two advance instalments from taxpayers. To ensure fairness between companies and associations of persons, the Ashfaq Tola-led RRMC Commission has proposed a 10% tax on associations of persons and sole proprietors, excluding professional service providers. In his budget wind-up speech, the former-finance minister Miftah Ismail announced the imposition of a “one-time super tax” ranging from 1% to 10% on large firms. Prime Minister Shehbaz Sharif also reiterated this promise. However, The Express Tribune reported at that time that the government did not have a plan to fulfil its commitment.

According to Section 4C of the Income Tax Ordinance, which pertains to the super tax, the imposition of the super tax will continue for the tax year 2022 and beyond. However, for the tax year 2022, individuals and companies engaged in certain sectors, including airlines, automobiles, beverages, cement, chemicals, cigarette and tobacco, fertiliser, iron and steel, LNG terminal, oil marketing, oil refining, petroleum and gas exploration and production, pharmaceuticals, sugar, and textiles, will be subject to a 10% tax rate if their income exceeds Rs300 million.

The 4% super tax collected from individuals and all companies should be maintained, but the government may consider withdrawing the 10% super tax imposed on the 13 specified sectors, said the former finance minister.

The RRMC acknowledged in its report that the effective income tax rate for companies is 51%, which is higher than the standard income tax rate of 29%, due to the inclusion of various types of taxes.

However, the RRMC also recommends the continuation of the Super Tax. According to its interim report, taxpayers have no explicit requirement to discharge their tax liability in advance. The RRMC suggests amending section 147 of the Ordinance to hold taxpayers responsible for paying advance tax against liabilities determined under the Super Tax and the deemed income tax on real estate.

The report further states that if a taxpayer estimates that their tax liability for the tax year 2023 is zero or lower than their tax liability in the tax year 2022, they should file an estimate justifying the lower amount along with supporting evidence. However, the taxpayer must ensure that at least 90% of the tax payable is paid as advance tax. If the advance tax payment is less than 90% of the actual tax liability, a default surcharge should be applied for the shortfall in the advance tax payment.

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