On 28 June, 2024, the National Assembly of Pakistan passed the financial bill for the fiscal year of 2024- 2025. Pressured to meet the requirements of the International Monetary Fund (IMF), the government has increased taxation by 40% despite the enduring recession. The new laws have been vigorously opposed by many, including the corporate sector, for how the fiscal policy will impact businesses of all sizes- from startups and SMEs to enterprises and MNCs- and the disproportionate reprieve for the elite at the cost of the salaried class.
While different stake-holders continue to push for changes, it’s important for businesses to align their own fiscal strategies to survive the coming year. So, what does the new budget mean for your business?
For all Associations of Persons (AOP), a group of individuals or entities who come together to conduct business or achieve a collective goal, income tax has been increased to 44% while sales tax averages 18%. Additionally, through the introduction of super taxes, income tax for AOPs earning over Rs 500 million may increase to 60%. This spells disaster for founders and businesses across Pakistan.
While startups have already been running on leaner operations because of the VC drought, companies need to quickly adapt and develop business models that promote profitability and a positive cash flow. Overhead costs can also be considerably reduced by businesses adopting flexible workspace solutions like coworking where the administrative costs and maintenance is taken care of for you.
A higher income tax on the salaried and non-salaried class, 39% and 50% respectively, also means consumers have less disposable income. Paired with flaring inflation, businesses will also struggle due to a limited demand while the supply remains unaltered.
With taxation at an all time high, the tech ecosystem finds a bit of relief through the incentives the Special Technology Zone Authority (STZA) offers tech businesses in Special Technology Zones (STZ). Businesses operating from Daftarkhwan | Alpha can apply for a Zone Enterprise License that provides them with exclusive exemptions from income tax, minimum tax and duties on import of capital goods.
With the IMF having reached a staff-level agreement with the government for a $7 billion loan, there’s hope for Pakistan’s economy being revitalized. Businesses can also anticipate for a bit of relief soon and potentially a higher influx of foreign investment.
The new budget has raised taxes, posing challenges for businesses, particularly startups and SMEs. Amidst these new constraints, businesses must continue to innovate and disrupt to thrive in the evolving economic environment.
Comments