How Will Your Salary be Affected? Understanding Pakistan’s New Income Tax Slabs

In a tumultuous session of the National Assembly, the Finance Minister of Pakistan, Senator Muhammad Aurangzeb, unveiled the budget for the fiscal year 2024-2025. Amidst the uproar from the opposition, the finance minister presented new income tax measures that are set to impact earners across the country.

The new budget sets an ambitious tax target of Rs12.97 trillion, marking a 38% increase on a year-on-year basis. This move is aimed at securing a crucial bailout package from the International Monetary Fund (IMF). Despite facing massive financial and political challenges over the past year, the government’s progress on the economic front has been impressive, as noted by the first-time finance minister.

The budget, laden with both direct and indirect taxes, aims to generate an additional revenue of Rs3.8 trillion. This move is seen as a response to the IMF’s demands and a strategy to rescue Pakistan’s economy, which has been grappling with inflation and dwindling incomes.

The government has introduced a series of tax hikes affecting various sectors. These include the salaried and non-salaried classes, real estate, retailers, and several consumer goods. The removal of GST exemptions and the imposition of taxes on milk and milk products, mobile phones, poultry feed, tractors, medicines, and diagnostic kits are among the notable changes. The Federal Excise Duty on cement has been increased from Rs2 per kg to Rs3 per kg.

The new tax measures have also been approved by the treasury benches and are set to increase taxes for high earners, including both salaried and non-salaried individuals. The new income tax slabs for 2024 have been structured as follows:

For those earning up to Rs600,000 annually, there will be zero tax.

  • If the income exceeds Rs600,000 but does not surpass Rs1,200,000, a tax rate of 15% will be applied to the amount exceeding Rs600,000.
  • For taxable income that surpasses Rs1,200,000 but does not exceed Rs1,600,000, a tax of Rs90,000 plus 20% of the amount exceeding Rs1,200,000 will be imposed.
  • If the taxable income exceeds Rs1,600,000 but does not surpass Rs3,600,000, a tax of Rs170,000 plus 30% of the amount exceeding Rs1,600,000 will be collected.
  • For income that exceeds Rs3,600,000 but does not surpass Rs5,600,000, a tax of Rs650,000 plus 40% of the amount exceeding Rs3,600,000 will be levied.
  • If the taxable income exceeds Rs5,600,000, a tax of Rs1,610,000 plus 45% of the amount exceeding Rs5,600,000 will be received by the national exchequer.

Pakistan's tax system is undergoing major changes due to new tax rules. The government's decision to raise taxes for those with higher incomes is viewed as a move towards a fairer tax system. However, there are worries about how this could affect the country's economic progress and attractiveness to investors.

The new tax measures have been met with mixed reactions. While some view them as a necessary step towards fiscal consolidation and ensuring the country’s economic stability, others argue that they could potentially discourage investment and hinder economic growth.

This decision comes in the wake of the International Monetary Fund’s (IMF) recommendation to Pakistan to tax the salaried and business individuals at a single income threshold. The IMF has also asked Pakistan to withdraw all income tax credits and allowances, particularly those available to teachers and researchers.

The government’s new tax measures have been met with mixed reactions. While some believe that these measures are necessary for the country’s economic stability, others argue that they will place an undue burden on the middle and lower-income groups.

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