Federal government takes a big u turn over tax relief to salaried class

ISLAMABAD – Federal government, just a few weeks ago, announced huge reliefto salaried class by increasing the minimum taxable income to Rs 1.2million a year. However, this increased threshold meant that around 0.5million or 44% of the individuals would slide off the tax net.

Now, upon the request of the Federal Board of Revenue, the government hasreversed its decision of increasing the minimum threshold. According to thelatest reports, the minimum taxable income has been set at Rs 0.4 million ayear – same as it was before announcing the relief.

According to the amendment in the tax bill, the income tax will be chargedat following rates;

– Rs 1,000 tax to be introduced for incomes slabs Rs 400,001 to Rs 800,000 (yearly) – Rs 2,000 for income ranging from Rs800,001 to Rs1,200,000 a year.

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Before this latest amendment, Miftah Ismael while announcing the budgettold;

Tax rates on individuals have been lowered. Complete tax exemption has beengiven to people who earn up to Rs 1.2 million a year or Rs 0.1 million amonth. This exemption limit, which was previously Rs 0.4 million a year,has been increased three times to Rs 1.2 million a year. Tax will be leviedat the rate of 5 percent for the income between 0.2 and 0.4 million monthly.

He further added;

People earning above 0.4 million monthly will be taxed at the rate of 15percent. In Pakistan highest tax burden was on the salaried middle-classwhich include teachers, doctors, lawyers, nurses, accountants. Reduced taxrates will significantly lower tax burden on this class.

Pakistan’s tax net is already pretty much thin with only 1.2 million peopleunder the tax net. This is roughly only 0.6% of the total population ofPakistan that exceeds the 200 million mark.

What’s interesting is that a PMLN Senator, Musadiq Malik, had justifiedthat providing this tax relief would only have a minor impact on taxrevenues and would give relief to the salaried class who were poor orbelonging to the lower middle class. He claimed that the effect of Rs 80billion in terms of relief was a minute one if we were to consider thetotal revenues of over Rs 4000 billion.