Salaried class tax burden

The salaried class in the country is likely to get worse off — well, in terms of their take-home pays. Pensioners too may take an unprecedented hit, if an IMF proposal to increase tax rate — that would be equally applied to salaried individuals and business persons — gets through. According to a report in this newspaper, the international lender has proposed a single tax rate of 30% for those who earn in the range of Rs104,000 to Rs1 million a month. This means that a person earning Rs100,400 a month will have to lose Rs30,120 as income tax — which is simply unaffordable, more so in the times of severe economic hardships. Also, the proposal is unjustified as it equates a person earning a hundred thousand bucks with the one earning 10 times more. Currently, the 30% tax rate is levied on those earning Rs4.1 million a month.

Proposals regarding other income slabs, according to the report, are also worrying — 35% tax rate for people earning in excess of Rs1 million; 20% on the monthly income between Rs79,001 to Rs104,000 (a rate currently being charged from people earning as high as Rs417,000); 10% for people having monthly income between Rs62,501 and Rs79,000 per month (a rate currently being applied to those earning Rs150,000); and 5% for people earning in the range of Rs50,000 to Rs62,500 per month (while the same rate is currently being levied on people earning up to Rs100,000 a month).

Such a high tax rate would be a massive increase in the tax burden on the middle income groups, and necessitates finding other areas to raise additional revenue. While this would be an extremely bitter pill for the government to swallow, the IMF must also realise that it is yet another harsh condition it wants to impose on a people already reeling from a double-digit inflation rate; and that it would affect the implementation capacity of the reform measures themselves, suggested under the $6 billion bailout programme.