New Tax Reforms 2018 & Tax Rates In Pakistan

A detailed meeting between government and economic advisory council  (EAC) was held on Thursday, April 6th, 2018 regarding the tax reforms and making new policies to enhance the tax collection system. The government has been working on these issues since last year and many suggestions were given in order to collect more tax and at the same time provide a relief for the taxpayers and the general public and give them back the real value of their tax money.

After the meeting, prime minister of Pakistan Shahid Khaqan Abbasi held a press conference and explained the outcome of the meeting in prime minister house. He announced new tax reforms in the form of an incentive package for taxpayers. Details of this package and benefits will be explained. This new Tax reform is a complete package that will benefit the middle class and a relief for the salaried person.

According to the sources, this new package of tax reforms is based upon five major points.

Five Points Of Tax Reform Package

During the press conference, PM Abbasi explained that complex and complicated tax process and reforms are hard to implement and it won’t attract people to file their tax, just like every other civilized society in the world. Therefore new tax reforms have five major but simple points that can be understood by any person.

1. CNIC number to become NTN tax number

Computerized National Identity Card (CNIC) number will be the NTN number of every individual, in order to monitor taxation of every person who has a valid CNIC. All the information and data will be centralized and linked to the CNIC of every taxpayer, salaried or self-employed.

2. Reduction of income tax rates

In new tax reforms government have revised the tax brackets, and newly revised tax brackets are very simple and easy to understand. The government previously used 12 tax brackets for salaried individuals and eight for self-employed individuals to calculate their income tax liabilities, which was very complex but now these have been reduced to 4 tax brackets. Complete tax exemption bracket on your annual income has been increased to Rs 1.2M, that means if you are making Rs.100000/month or less you will not be entitled to pay any tax and will be eligible for complete tax exemption. And maximum tax bracket has been reduced from 30% to 15% on more than Rs 4.8M/annum.

  • Complete Tax exemption on annual income up to Rs1.2m
  • 5% tax on annual income between Rs1.2 and Rs2.4mn
  • 10% tax on annual income between Rs2.4 and 4.8mn
  • 15% tax on annual income above Rs4.8mn

3. One-time tax amnesty scheme:

The government has also given a chance to non-taxpayers to declare their assets and income from any local source or from abroad by paying nominal penalties. This Amnesty scheme has been offered for only one-time exemption from accountability law upon the declaration of your assets.

  • Local liquid assets at 5% penalty;
  • Foreign cash assets at 2% penalty;
  • Assets/fixed property abroad at 3%;
  • Dollar accounts can be declared and kept abroad at 5% penalty

This Scheme is for all the people who have undeclared income or assets earned before June 30th, 2017, and they will get an only one-time exemption from accountability or other laws, means their sources will not be asked but only for one time just to bring the assets or income into tax net, at a very nominal penalty. And after one year once you are in Tax net you will be entitled to the regular tax and accountability laws.

  • Any acting politician and/or their dependents are not eligible for this Amnesty Scheme.

4. Property sector tax reform

Real estate market is the heaven for tax evaders and people have been using real estate to park their undeclared or black money. There has been a huge difference between the actual value of the property and the declared value or the value at which that property is registered. This point in tax reforms states that:

On any property that a citizen purchases, they will have to pay one percent “presumptive tax”, which will be adjusted in their annual taxes. Maximum 1% tax (local and provincial) for registration of property being recommended, At federal level Adjustable Advance Income Tax being reduced to 1%. Furthermore, the FBR rate on the property being abolished from 1st July 2018 and provinces being requested to abolish the DC rate, No purchase of property over Rs4 million is possible for non-filers of tax returns from July 1, 2018″.

In order to reduce the practice of under-invoicing which is very common in real estate, now the Government has a right to buy any property that a citizen has by paying 100% over its declared price. that means the Government can buy your property by paying you double of the declared price of your property. This will hold for six months from the registration of the property starting fiscal 2019.The rate will fall to 75pc in fiscal 2020, and 50pc in fiscal 2021 to disincentivize underreporting.

5. Monitoring & Compliance of taxpayers:

The Last main point of new tax reforms is the monitoring and compliance of taxpayers. The government will monitor financial transactions of every individual having CNIC and will issue notices if it finds tax evasion. According to the PM Parliament will decide the penalties for tax evaders. During the press conference, PM Shahid Khaqan Abbasi stated: “We do not want to send the police to anyone’s home or alert the Federal Board of Revenue, but our citizens need to be responsible and pay their taxes,”

At the end of press conference PM Shahid Khaqan Abbasi answered the questions from different journalists and the stance was the reason for this scheme is only to bring as many people as possible under the tax net, and encourage people for file their tax returns. If people start paying their taxes according to the new decreased tax rates it will support the economic sustainability of Pakistan.



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