Impact of Budget FY25 on each sector

Banks

Disallowance as expense

• Current: Bad debts classified as ‘sub-standard’ and ‘doubtful’ under the Prudential Regulations of SBP are not allowed until reclassified as ‘loss’.
• Proposed: Provisions for advances, off-balance sheet items, or any other financial asset classified in stage I, II, or III under any applicable accounting standard, including IFRS 09, will not be allowed as an expense.
• Impact: This change could negatively affect banks by reducing allowable deductions from taxable income, resulting in higher effective taxation (currently around 49%).

Super tax

• A 10% super tax on banking companies for the tax year 2023 and subsequent years.

Cement

PSDP budget

• The PSDP budget for FY25 is set at PKR 1500 billion, 60% higher than the FY24 target (PKR 940 billion) and 196% higher than the authorized/disbursed amount during 10MFY24 (PKR 507 billion).

Tax changes

• Exporters have been shifted from the Final Tax Regime (1%) to the Normal Tax Regime. Income from exports will be subjected to normal rates, with a 1% tax collection on export proceeds treated as minimum tax.
• Cement FED increased from PKR 2/kg to PKR 3/kg, translating into an increase from PKR 100/bag to PKR 150/bag.
• Introduction of a withholding regime for coal.

Steel

Tax exemptions

• Phased withdrawal of sales tax exemption for ex-FATA/PATA.
• Continuation of income and withholding tax exemption for another year for ex-FATA/PATA.
• Increase/levy of RD on flat rolled products of iron and non-alloy steel.
• Iron and steel scrap exempted from sales tax.

Fertilizer

GST on DAP

• GST on DAP stands at 5% on ad valorem. Moving DAP to the third schedule indicates GST will be imposed on the retail price.

Oil Marketing Companies (OMCs)

Petroleum levy

• Proposed increase in the petroleum levy threshold from PKR 60/litre to PKR 80/litre on MS and HSD.
• Rationalization of customs duties on the import of HSD and LNG.
• Zero-rating of petroleum products is being converted into exemption.

Automobiles

Import duties and taxes

• Rationalization of regulatory duty on the import of new and used vehicles.
• Withdrawal of duty concessions on the import of hybrid vehicles.
• Reduction in customs duty concessions on the import of electric vehicles valued above USD 50,000.
• Levy of additional customs duty on localized auto parts to incentivize local manufacturing.
• Advance tax collection on motor vehicle registration may be changed from engine capacity to a percentage of value.
• Increased tax collection percentage for vehicles with engine capacity over 2000cc.
• Sales tax imposed on tractors at 10%, compared to the current exempt status.

Textiles

Export regime changes

• Exporters shifted from the Final Tax Regime (1%) to the Normal Tax Regime. Income from exports will be subjected to normal rates, with a 1% tax collection on export proceeds treated as minimum tax.
• Enhanced reduced rate of sales tax from 15% to 18% on supplies made by POS retailers dealing in textile products.

Pharmaceutical

Customs duties

• Exemption of customs duties on Bovine lipid extract surfactant.

Information Technology

Tax regime

• The IT sector continues to remain under the Final Tax Regime (Section 154A), despite exporters being shifted to the Normal Tax Regime.

Mobile Phones

Tax rate changes

• Mobile phones will be taxed at a standard rate of 18%, except for mobile phones exceeding USD 500, which will remain at the existing rate of 25%.

Power/IPPs

Advance tax and subsidies

• Increase in advance tax for non-tax filers from 12% to 30% for domestic consumers with monthly electricity bills exceeding PKR 200,000.
• Incentives for manufacturing solar panels and allied equipment.
• Subsidy amount allocated to KEL set at PKR 174 billion (FY24: 228 billion).
• Subsidy amount allocated to Inter-Disco Tariff Differential set at PKR 276 billion (FY24: 150 billion).

Food & Beverage

Sales tax exemptions

• Sales tax exemption introduced for milk, excluding that sold under a brand name.
• Withdrawal of RD exemption on the import of ground nuts and margarine by food confectionary.
• Withdrawal of customs duty concessions on the import of fresh and dry fruits.
• Rationalization of customs duties on the import of wheat and sugar.

Others

Sales tax and exemptions

• Enhanced reduced rate of sales tax from 15% to 18% on supplies made by POS retailers dealing in leather products.
• Review exemption of duties on the import of inputs for home appliances.
• Extension of the period for adjusting unadjusted business losses from six to ten years for Pakistan International Airlines Corporation Limited (PIACL) to support its privatization.
• Price threshold for locally manufactured cigarettes increased from Rs. 9,000 to Rs. 12,500.
• Rationalization of customs duty on the import of parts of submersible pumps.
• Elimination of import duty on glass products.

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Disclaimer:

The information in this article is based on research by Al Meezan Investments. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.