In a tactical yet contentious move to raise national revenue, the federal government has introduced a new round of taxation policies, equivalent to 36 billion rupees, as part of its Budget 2025 proposal. It is these measures, upon their formal announcement at a sitting of the Standing Committee on Finance of the National Assembly, that have elicited considerable discussion among members of the business and investment communities in Pakistan.
Key Tax Proposals
The new taxation policies were proposed in Parliament by the Chairman of the Federal Board of Revenue (FBR), with the trade fast-tracked in the Finance Committee. The three sectors that are mainly targeted by the measures include:
- Poultry Industry:
The Day-Old Chicks (DOC) will undergo a 10 percent Federal Excise Duty (FED) at the hatching stage. Such tax is the first one that has been imposed in the poultry sector in Pakistan.
As the government looks forward to vast collections of the revenue due to this move, poultry farm owners and hatcheries caution that the increment in cost may be passed down to the consumers thereby increasing the cost of food, eggs in particular, and chicken meat consumption, which is the main staple of many of the lower and middle-income families.
- Mutual Funds:
The government has also suggested an increase in the tax rate on dividends earned by companies through mutual funds (which generate profits based on profits) to 29% (a 4% increase).
The reason behind this change is to capture a bigger portion of the money in financial circles, particularly the institutional investors. It can, however, affect the suitability of the mutual funds as an attractive form of investment by major institutions.
- Government Securities:
The withholding tax on profit on government securities i.e. Pakistan Investment Bonds (PIBs) and Treasury Bills (T-Bills) has been raised to 20 percent as against 15 percent earlier not on individual investors. This change will not affect the individual investors.
This will likely deter immediate short-term investment speculation but increase long-term financial sustainability; however, some fear that low demand for government-issued bonds will result.
Economic Rationality and Relation
According to the government, this aspect of taxation is crucial in increasing the tax base, reducing the fiscal deficit, and meeting the demands of international lenders, such as the International Monetary Fund (IMF).
However, according to critics, all these new taxes, particularly those imposed on fundamental sectors like poultry, might lead to inflationary pressure, especially on essential food items. Agricultural actors fear that there may be cases where farming will be slower and shock the livestock market labor.
Budget in the spotlight
These changes in taxes occur days before the Finance Bill 2025 is finally passed and enacted into law; hence, such amendments will be subject to critical evaluation from both sides of the camp, including opposition lawmakers and industry body representatives. These measures are also indicative of the fact that the government wants to raise more revenues in those sectors that were under-taxed or have never been taxed before, and would be somewhat comfortable with provoking a storm.
Keep watching as the entire budget 2025 is unveiled in the next few days, along with additional provisions and their implications for businesses, investors, and ordinary citizens.
