Civil servants taste change in take-home pay

Increase in income tax liabilities dampens raise of 5-10% in salaries

ISLAMABAD: The take-home pay of a majority of the civil servants has slightly reduced despite a raise of 5% to 10% in their salaries in the federal budget due to a surge in income tax liabilities, which will also undermine consumer spending.
The Pakistan Tehreek-e-Insaf government had announced a 10% increase in the salaries of grades 1 to 16 officials and 5% raise had been given to the officers serving in grades 17 to 20.

No raise had been given to the government employees serving against two highest basic pay scales of grades 21 and 22. But the increase in salaries was not enough to absorb the full impact of the surge in income tax liabilities.

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Overall, the changes resulted into an extra Rs128,000 income tax payment for a Grade 20 officer who received a 5% raise in salary.

The take-home salary of majority of officers reduced from Rs3,000 to Rs15,000 per month, according to the pay slips of grades 18, 19 and 20 officers seen by The Express Tribune.
In case of up to Grade 16 officials who got 10% raise, the impact was either largely neutral or slightly positive, as their tax liabilities did not increase much.
The officers tasted a change in salaries on August 1 when they received their first pay in the fiscal year 2019-20. For a Grade 20 officer, the monthly income tax increased from Rs4,800 to Rs15,500 –an increase of over Rs10,600 or 220%.
The previous Pakistan Muslim League-Nawaz (PML-N) government had given sweeping tax cuts to the salaried class and raised the exemption threshold three times to Rs1.2 million from Rs400,000.

The PML-N government had also cut the income tax rates to maximum 25% from 35%.
However, the PTI government has increased the income tax rates twice for the salaried and non-salary individuals during past one year. For salaried individuals, against the PML-N era progressive rates of 5%, 15%, 20% and 25%, the PTI government has increased rates in the range of 5% to 35%, having 11 slabs.
The income tax exemption threshold has also been halved from Rs1.2 million to Rs600,000.
This has now reduced the disposable income of even those who have received raise in their salaries. The tax rates were increased for the individuals at a time when the government also introduced sales tax rates on almost all consumer goods.
The impact of increase in income tax liability of private sector employees is even steeper, as they did not get any raise in their salaries.

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The reduction in take-home salary and imposition of sales tax on consumer goods is likely to undermine the consumer spending in this fiscal year. Due to slowing economy, companies have started reducing production, which may neutralise the impact of any increase in income tax collection.
The prices of the goods have significantly shot up after July after the manufacturers and retailers passed on the impact of increase in taxes to the end consumers.
After a 5% raise in salary of a Grade 20 officer, his gross annual income increased by only Rs68,000 or 2.3%. However, as compared to this nominal increase, the annual tax liability of a Grade 20 officer surged from Rs57,000 to Rs185,000 –a net increase in tax burden of Rs128,000 or 223%.
Due to the increase in income tax liability, the net take-home salary of a Grade 20 officer has reduced by Rs60,000 annually.
For a Grade 19 officer who serves in the Federal Board of Revenue, the impact is steeper. His annual net salary has reduced by Rs156,000.
Although the government claimed that the additional impact of increase in income tax rates would be only Rs40 billion in this fiscal year, the International Monetary Fund report revealed that the actual benefit that the government would get was nearly Rs90 billion.
Where it increased the tax burden of the salaried individuals, the PTI government also gave tax concessions to Pakistan's richest families.