“In this world, nothing can be said to be certain except death and taxes,” a famous quote by Benjamin Franklin. This quote squarely applies to the registered taxpayers of Pakistan, particularly the salaried class.
If you are in the tax net and pay your taxes on time, then your life will remain miserable not only due to harassment during enforcement but also due to the levying of further taxes to meet revenue targets.
Meanwhile, those who are out of the tax net will continue to live as they please. The exorbitant cost of commodities, high inflation, reduced purchasing power, and the imposition of huge taxes will not only impact the lives of citizens but also force professionals to seek jobs outside Pakistan, resulting in a brain drain that has been observed for quite some time.
Those who are unable to find opportunities elsewhere and cannot make ends meet may engage in activities that could lead to a law and order situation in the country.
Tax is usually defined as a sum of money demanded by a government for its support or specific facilities or services, levied upon incomes, property, sales, etc. In general, it is the right of every law-abiding citizen and taxpayer to know what kind of facilities they are receiving because of this mandatory contribution.
The broken roads, constant power breakdowns, gas load sheds, poor infrastructure, law and order situation, lack of availability of resources, substandard education system, unemployment, and what not – all these issues will lead one to question: why should these people be registered under the tax net and pay the government the due share of taxes?
Although this doesn’t justify their contention, the situation worsens when the government lacks willingness to tax those who contribute more towards GDP, either not taxing them at all or taxing them at very low rates. On the other hand, those who are paying their taxes on a timely basis are penalised for those who aren’t.
The perfect example for this case is the salaried class of our country, which gets targeted whenever there is a tax revenue shortfall. However, the time has come when this class should be relieved from taxes in the upcoming budget.
Legislators of Pakistan should not only focus on short-term policies but also consider the long-term outcomes of their measures. Each year, we witness the salaried class being further burdened by increased taxes or the withdrawal of tax benefits.
It was just last year when the government significantly raised salary tax rates, citing pressure from the International Monetary Fund (IMF) to meet revenue targets for the ongoing fiscal year.
Among various options, the salaried class became an easy target, as most of their taxes are collected at source by their employers under Section 149 of the Income Tax Ordinance, 2001.
Read: Govt mulls help to expand tax base
Previously, the government had revoked certain tax credits and deductible allowances, resulting in the same net position of paying higher taxes. These included deductible allowances for profits on debt financing for the construction or acquisition of a new house, tax credits for investments in shares and Sukuks, and life and health insurance.
While this impacted individuals beyond the salaried class, salaried individuals were the most affected. Legislators must consider that if the government cannot provide essential facilities to its citizens, then at least these modest tax benefits in the form of rates, credits, deductible allowances, etc should not be withdrawn.
It’s essential to consider that sectors contributing more to the GDP, such as agriculture, retail, construction, and development, are also taxed based on their contribution. Failure to do so could lead to resentment among taxpayers.
The upcoming government, while presenting the budget for 2024, should consider measures to provide relief to the salaried class. This could include waiving taxes for senior citizens and disabled persons, as there used to be a reduction in tax liability available for them.
Moreover, senior citizens and disabled persons should be exempt from taxes, at least to the extent of their salary income. Additionally, the tax on salary income should be exempt if it’s equal to or below Rs1,200,000 per annum, currently set at Rs600,000 per annum.
Considering that interest-free loans by employers do not generate salary income for employees, taxes on such notional incomes should be removed. Furthermore, the salaried class should receive tax refunds automatically within 120 days of filing a return if applicable.
The government could also introduce additional benefits, such as tax credits for employers who provide provident fund benefits to their employees, thereby supporting the salaried class during challenging times.
Another important amendment to propose is that withholding tax rates should be lower than the rates of recipients, ie, salaried individuals, which they use to calculate their liability at the time of filing their return.
This practice is not new; it’s already implemented in many cases where the tax rates of the withholding tax agent are lower than the rates at which the recipient would pay taxes when filing the return.
This adjustment would assist the salaried class in avoiding the accumulation of refunds, especially in cases where employers may not facilitate claiming advance taxes or tax credits.
Additionally, there’s a pressing need to compare tax rates with those prevailing in other countries in the region and worldwide, considering factors such as tax deductions and rebates they allow.
It’s often said that where there’s a will, there’s a way. The time has come for the upcoming elected government to consider the principles of levying taxes and the objectives to be achieved through taxation, especially for the salaried class of our country.
Many times, tax benefits are omitted from the law due to inadequate enforcement by officers, highlighting the need to strengthen our tax machinery for enforcement rather than depriving taxpayers of benefits. Moreover, there’s a necessity to broaden the tax base and bring more people into the tax net using available data, which would also help achieve short-term revenue targets.
THE WRITER IS A LAW GRADUATE WITH ADVANCED DIPLOMA IN INTERNATIONAL TAXATION
Published in The Express Tribune, March 11th, 2024.
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