The government’s recent introduction of new taxation measures through the Finance Act 2023 aims to revive the International Monetary Fund program and generate additional tax revenue. These measures have implications for builders, developers, and the sale of DAP fertilizers in particular.
One of the key changes is the implementation of advance income tax on builders and developers, along with the imposition of a 5% sales tax on DAP fertilizers, which is expected to raise approximately Rs215 billion in taxes.
The revised tax slabs include a lower tax rate of 2.5% for the salaried class, while the maximum rate has been increased to 35% from 32.5%. Ashfaq Tola, Chairman of the Reforms and Resource Mobilisation Commission, conducted an assessment of the impact of the revised tax slabs on salary taxation.
The government’s decision to implement these amendments stems from pressure exerted by the IMF and represents a reversal of its previous decisions made on June 9.
Under the new provisions, individuals deriving income from constructing, selling, or developing residential, commercial, or other properties will be required to pay adjustable advance tax on a project-specific basis. This tax must be paid in four equal installments throughout the tax year, based on the notified tax rates.
Furthermore, filing tax returns and appearing on the active taxpayer list have been linked to availing exemptions from tax on deemed income under Section 7E.
In addition to these changes, the government has imposed a 5% federal excise duty on all types of fertilizers, including DAP. The decision to reduce the sales tax rate on services in the federal capital from 16% to 5% has been reversed, reinstating it back to 15%.
The annual turnover limit for Small and Medium Enterprises (SMEs) has also been reverted to the pre-budget level, with IT or IT-enabled services included in the definition of SMEs.
To address tax liability cases exceeding Rs100 million, an alternative dispute resolution committee will be established. Other amendments include the raised threshold for zero rating of preparations for infant milk for retail sale and the withdrawal of certain exemptions that were initially introduced in the budget speech.
Additionally, the fixed tax and input tax adjustment restrictions have been extended to the supply chain for drugs and raw materials of Active Pharmaceutical Ingredients.