Explanation of the Finance Act Changes

The Finance Act 2024 introduces several significant amendments impacting normal taxpayers under the Income Tax Ordinance 2001. These changes are designed to adjust tax rates, introduce new tax regimes, and amend existing provisions for better compliance and revenue generation. Below is a summary of the key changes:

1. Tax Rate Adjustments

The Finance Act 2024 proposes several changes to the income tax rates for individuals:

Surcharge on High Incomes: A new surcharge under Section 4AB has been introduced. Individuals (salaried or otherwise) and Associations of Persons (AOPs) with an income exceeding PKR 10 million will be subject to a 10% surcharge on the income tax levied.

Increased Tax Liability: For individuals and AOPs earning more than PKR 10 million, the effective tax rates will be 38.5% for salaried individuals and 49.5% for others, including a 44% rate for professional firms.

2. New Tax Regime for Real Estate

A separate tax regime under Section 7F has been introduced for income arising from:

• Construction and sale of residential, commercial, or other buildings.
• Development and sale of residential, commercial, or other plots. This aims to streamline the tax process for businesses involved in real estate development.

3. Wealth Statement Amendments

The amendments to Section 116 now require taxpayers to include foreign assets and liabilities in their wealth statements:

The inclusion of the term "foreign liabilities" clarifies that both foreign assets and liabilities must be reported.

The wealth statement must include the transfer of foreign assets and the consideration received during the specified period.

4. Advance Tax on Real Estate Transactions

Section 236C has been amended to specify that the advance tax on the sale or transfer of immovable property will now include transactions registered by various authorities and societies. This clarifies and broadens the scope of taxable real estate transactions.

5. Adjustments in Default Surcharge

The default surcharge under Section 205 has been modified to be the higher of 12% per annum or KIBOR plus 3% per annum. This change aims to align the surcharge with prevailing market rates.

6. Exemptions and Reductions

The removal of the 25% rebate for full-time teachers and researchers has been withdrawn, restoring the rebate and providing relief to this group.

The threshold for imposing penalties for non-compliance with income tax orders has been reduced from PKR 100 million to PKR 50 million for the first default and PKR 200 million to PKR 100 million for subsequent defaults.

7. Foreign Digital Transactions

A new sub-section in Section 101(3B) has been added to tax non-resident entities with significant economic presence in Pakistan. This includes transactions involving goods, services, or property with residents in Pakistan, focusing on digital and online business activities.

8. Miscellaneous Amendments

Introduction of a Tax Fraud Investigation Wing to tackle tax evasion and fraud effectively.

Provisions for better assessment and benchmarking for various business sectors under Section 121.

These amendments aim to enhance tax compliance, broaden the tax base, and ensure fair taxation across different sectors. Taxpayers are advised to consult with tax professionals to understand the detailed implications of these changes on their financial obligations.

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