Pakistan's salaried class wins huge tax exemptions

Published: April 5, 2018
Photo: FILE

Photo: FILE

ISLAMABAD: In the single largest wage-boosting measure in Pakistan’s history, Prime Minister Shahid Khaqan Abbasi announced on Thursday to increase the income tax exemption threshold by three-fold to Rs1.2 million, and cut the maximum individual income tax rates by 57% from July.

The decision to change the income tax rates for the salaried class will provide a relief of almost Rs100 billion before the upcoming general elections. The government has offered the simplest tax structure having only four income tax slabs with rates from 5% to 15%. These slabs would replace the seven existing income tax slabs that attracted income tax rates from 10% to 35% plus a fixed amount of tax.

The decision will take effect from July 1, said Prime Minister Abbasi while addressing a press conference at the PM’s Office.

Salaried class to benefit as govt mulls lower income tax rates

However, the decision to increase the income tax exemption slab from Rs400,000 to Rs1.2 million per annum will erode 521,597 income tax return filers from the current tax base, which is 42% of the existing tax base, according to calculations of the Federal Board of Revenue.

But the Prime Minister Abbasi said that irrespective of the fact whether there is a tax on income or not, the people will have to file their income tax returns, which will increase the tax base.

The three-fold increase in income tax exemption will also cut the FBR’s tax revenues by Rs35.2 billion, which the category of people earning from Rs400,001 to Rs1.2 million per annum contribute. The present rates for Rs400,001 to Rs1.2 million are in the range of 10% to 15%.

Out of 1.26 million people who have filed income tax returns, over 700,000 of them paid income tax, said PM Abbasi. The rest of the 500,000 people did not pay a penny but filed income tax returns, said the Prime Minister. “This is unsustainable situation and requires radical reforms”, said the Prime Minister.

From tax year 2013 to 2017: Except for salaried class, number of tax return filers shrinks

The PM said that it has been proposed to exempt the annual income of up to Rs1.2 million from the tax. “This is substantial reduction in the tax rate and there is now hope that the people will start paying taxes,” said the PM.

The Prime Minister said that the income tax rates for people earning from over Rs1.2 million to Rs2.4 million will be 5% from July 1. The existing rates for this category of the people are in the range of 10% to 17.5% in addition to a fixed amount of tax. In this category about 346,000 people paid Rs27.7 billion in income tax last year. The FBR will take a hit of about Rs20 billion in this category.

The PML-N government will announce fiscal year 2018-19’s budget on April 27 – almost five weeks before its five-year constitutional term comes to an end. The new income tax rates will be lowered through the Finance Bill that the government will table in the National Assembly on April 27.

Govt considering taxing ‘gifts’ among non-family members

The PM also announced that for the income category of Rs2.4 million to Rs4.8 million the income tax rate will be 10% only. At present, the tax rate for this category are in the range of 17.5% to 27.5% in addition to a fixed amount of tax. In this category about 186,000 paid Rs27 billion income tax last year.

Abbasi said for those who earn over Rs4.8 million annually, the income tax rate will be only 15%. The existing rate for these people is in the range of 27.5% to 35% plus Rs6 million tax for the highest slab. In this category, about 248,000 people paid Rs75 billion income tax to the FBR. At the revised rates, the FBR will take a hit of about Rs40 billion.

Facebook Conversations

Reader Comments (21)

  • Ann
    Apr 5, 2018 - 10:34PM

    Good step Recommend

  • Shuaib
    Apr 5, 2018 - 10:52PM

    This is an evil law.Recommend

  • Kashif Naqvi
    Apr 6, 2018 - 6:28AM

    If people see their tax money being put to good honest use, they ll be encouraged to pay otherwise nothing will workRecommend

  • Umair
    Apr 6, 2018 - 8:16AM

    Pre poll rigging is on the way. This relief is just a political gimmick to Lure salaried class to vote for them. Who ever wins next election they have to abandon this relief. Recommend

  • Anoni
    Apr 6, 2018 - 8:31AM

    Sound like a honey trap . why now ? wen they only have one month left in goverment>.

    They can simply revert to old setup when the new government signin in after election .. perhaps if they announce to keep it like that for 3 year with law backing it .then it make sense .Recommend

  • Saleem
    Apr 6, 2018 - 8:40AM

    Already tax collections are low now even less money will be there. Recommend

  • concerned
    Apr 6, 2018 - 10:50AM

    The tax rates are still very high and will not provide the desired relief to the working middle class. do the math.
    The first income tax was created in 1861 during the Civil War as a mechanism to finance the war effort in the US. so basically this is a war tax imposed on us.
    The history of Income-Tax in India dates back to 1860 when the first Income Tax Act was introduced by James Wilson who became (British) India’s first finance member.
    After almost two centuries we are still paying income taxes(war tax). how ironic is that. Income tax need to be abolished if the government is serious about giving relief to the people. Recommend

  • imran ali
    Apr 6, 2018 - 11:29AM

    a very bad and ill motivated political move by PML N- They are not interested int he economic reforms and tax reforms- A PM of few more days should not take such drastic policy decision particularly when the economy is already under turmoil due bad governance by PML N- they spent whole year to save only ONE Person- No rational and prudent mind would appreciate such move to further weaken the economy- Why PML has not made gradual decrease in taxes in their tenure,, Recommend

  • Xahid
    Apr 6, 2018 - 11:32AM

    They should do it 5 years ago, everybody will appreciate,
    Now nobody knows if the next govt. will keep it up?Recommend

  • ABC
    Apr 6, 2018 - 12:06PM

    This is set to be applicable from next government when N league wouldn’t be in power anymore. They have milked every penny from poors of the nation through indirect and high taxing and now trying to be saint. No vote for them anymore Recommend

  • Haji Atiya
    Apr 6, 2018 - 1:20PM

    Bad step for the economy but great step for wooing voters.Recommend

  • Haseeb Khan
    Apr 6, 2018 - 2:43PM

    It is not only for salary but all individualsRecommend

  • javed ali
    Apr 7, 2018 - 7:37AM

    Excellent step of reducing taxes on salaried class. This is the class that pays their due share of taxes and they deserves some relief.Recommend

  • SHAZ
    Apr 9, 2018 - 11:17AM

    This will increase the inflation in the country. FBR major chunk of revenue was generated from the salaried class. To meet with the tax collection expectation, government will themselves be trapped in more debts and this will cause a decline in currency and increase of inflation. You all will witness huge taxes are on their way post election 2018. God bless Pakistan. Recommend

  • AQ
    Apr 12, 2018 - 11:14AM

    Ok this time little more than a plate of briyani presented to mediocre so called educated class to vote for PMLN. Abbassi is throwing bones out in the field to attract his pets. They love the step despite fact that FBR revenue will be reduced by 35 billion. Expect more taxes and duties on other category. This relief cannot stay longer. Pakistan economy can’t survive cut down on tax only if Govt increasing tax net by telling their ministers and their voters to pay taxes first because they are biggest tax thief.Recommend

  • Osama
    Apr 12, 2018 - 7:39PM

    So, if someone has annual salary of 1.4 mil. How much tax will he pay?

    Will 5% be applied on the whole 1.4 mil or it will only be applied to the income exceeding 1.2 mil which is 200K.Recommend

  • Dr Fayyaz Hussain
    May 4, 2018 - 8:25AM

    @concerned: For God sake … what are u talking … Is it only we paying taxes ??? No … Every country collect taxes to provide services and to run country economics … Recommend

  • Adeel
    May 11, 2018 - 6:49PM

    This is just to get votes for election.If PML N wins election they will change it otherwise this decision is made to create problems for upcoming party to rule.Tax is very important part of national treasure as we are already under the mountain of debts and this decision will increase our debt ratio.Political decision.Nothing to do with the welfare of country.Recommend

  • shahzad
    May 16, 2018 - 2:28PM

    It is not only for salary but all individualsRecommend

  • Salaried Class
    Jun 5, 2018 - 8:55AM

    Here people want that only Salaried Class should pay big tax so that the country can be runRecommend

  • Salaried Class
    Jun 5, 2018 - 9:02AM

    Salaried Class is an easy hunt as the tax can be deducted at source before the salary paymentRecommend

More in Business