TAX NEWS - June 2010

Pakistan Tax: Higher salaried class to pay more tax

A tax consultant Younus Rizwani Sheikh said the government has dodged the salaried taxpayers by enhancing the threshold limit on one side and taxing individuals having higher gross salary at a higher tax rate of 20 per cent.

A sizeable resource gap in the budget 2010-11 will be filled through increased rate of taxes on the upper cadre salaried class whereby individuals having gross salary of Rs45.5 million will now pay tax at the rate of 20 per cent. Previously, people earning as high as Rs86.5 million were taxed at this rate.

The government has raised the basic threshold limit of salaried class from Rs200,000 to Rs300,000 and lowered the upper limit for higher tax rate for the salaried class.

This also means that instead of bringing in untaxed segments in the tax net and broadening the tax base the government opted for an easier option by taxing more the already taxed segments. Tax experts felt that the change has made the tax structure more unfair.

A tax consultant Younus Rizwani Sheikh said the government has dodged the salaried taxpayers by enhancing the threshold limit on one side and taxing individuals having higher gross salary at a higher tax rate of 20 per cent.

He said that the salaried class with higher income bracket would be paying more tax than they used to pay in the past.

Rizwan Shoaib, another tax consultant, said by reducing the upper taxable slab of salary income from Rs86.5 million to Rs45.5 million would mean that all incomes that fall between these two slabs will now be taxed at 20 per cent rate.

Against this in the past, salary income above Rs86.5 million was taxed at the rate of 20 per cent and income (salary) below this was taxed at 19 per cent. This would mean that the government has again put the burden of additional resource generation on salaried class.

The entire exercise of enhancing revenue collection proposed in the finance bill is mostly dependent on higher tax rates on different income groups, such as Association of Persons (AoPs), which has been pushed up from 2 per cent to a fixed tax rate of 25 per cent from the tax year, 2010.

Mr Rizwani was critical of the FBR that did not make any effort to widen the tax net and once again resorted to increasing tax rate on different segments of existing taxpayers.

He said that advance tax on purchase of air tickets or on banking transactions such as pay orders, bank draft or electronic transfer of funds, the tax deduction at 0.3 per cent are moves, which require no efforts on part of the FBR to enhance revenue.

Tax consultants have questioned the FBR's role in collecting revenue and said that if a huge strength of 32,000 officers and staff members are assigned to collect only 20 per cent of total revenue per annum is itself a strong evidence of its inefficiency and level of corruption.

Presently, some estimates put 80 per cent annual revenue collection of the FBR through withholding tax and the burden of collection of this tax fall upon the withholding tax agents.