Salaried individuals and small business owners are likely to receive significant tax relief in the upcoming budget. The government is considering exempting up to Rs350,000 in income from tax calculations entirely.
At present, while a salaried person earning less than that threshold is not taxed at all, one earning even a nominal amount above it is taxed on the entire income.
For instance, someone earning Rs400,000 is taxed at 1.5% on the entire amount. If the proposal under consideration is incorporated, however, the person earning Rs400,000 will only be taxed on Rs50,000 that is above the exempted threshold.
The move, if included in the ruling government’s fifth and last budget before upcoming elections, will benefit roughly 1.1 million salaried taxpayers in the country.
The budget is likely to be announced before mid-June.
Proposals on the table
The proposal was thrashed out at a meeting of tax reforms coordination group on Thursday, headed by Finance Minister Dr Abdul Hafeez Shaikh. Asked if the government was going to review tax brackets, the finance minister said the government will provide ‘relief to the masses’ in the upcoming budget.
Last year, the income tax exemption threshold, for salaried individuals and business owners, had been raised to Rs350,000 from Rs300,000.
A senior Federal Board of Revenue (FBR) functionary ruled out the possibility of increasing the income tax exemption threshold in the next financial year.
The proposal has currently been shot down, he said, but hastily added that nothing can be said till the finalisation of the budget.
He added though that the government was reviewing the option to lower tax rates on initial income brackets. The purpose is to provide relief as people’s purchasing power is shrinking due to double-digit inflation, he added.
For business owners, there are five income tax slabs ranging from 7.5% to 25% while for salaried individuals there are 16 tax brackets ranging from 1.5% to 20%.
Business owners with income exceeding Rs350,000, but less than Rs500,000, pay 7.5% in taxes while salaried individuals with income between Rs350,000 and Rs400,000 the tax rate is 1.5%.
The highest rates are applicable for salaried individuals earning more than Rs4.55 million per year, or businesses having an annual income above Rs1.5 million, according to the Income Tax Ordinance. For corporations, the income tax rate is 35%.
Taxing rental income
The government, on Thursday, also considered proposal to tax income from rental property, which is a federal subject under the constitution. A proposal to levy tax on monthly rental income above Rs100,000 was floated, but could not be finalised since the finance minister had certain reservations, sources said.
An FBR official said the authorities will also have to take provinces into confidence. Under the constitution, the federal government cannot levy tax on agriculture income but it has the right to tax rental income.
Published in The Express Tribune, March 31st, 2012.