A National Assembly panel on Friday termed a nominal reduction in the salaried class income tax rates a "joke", as discussions revealed that the salaried individuals would still pay around Rs535 billion in next fiscal year due to a paltry relief of Rs56 billion.
According to details shared by Federal Board of Revenue Chairman Rashid Langrial with the National Assembly Standing Committee on Finance, 981,051 individuals would get a direct benefit of 2% to 4% reduction in their tax rates. This translated into Rs56 billion in relief against the estimated Rs540 billion income tax collection in this fiscal year.
However, due to the proposed 10% increase in salaries and nominal economic growth, the FBR has estimated again receiving over Rs535 billion from the salaried class in the next fiscal year, according to the tax authorities.
"The proposed reduction in the income tax rates is a joke with the salaried persons," remarked Syed Naveed Qamar, chairman of the standing committee and former finance minister.
The FBR chairman agreed that the reduction was lower than desired but repeated that the government did not have much fiscal space to give any major relief.
In the last budget, the government disproportionately increased the salaried class burden, which pushed their contributions from Rs368 billion of the previous year to around Rs540 billion this year.
From Prime Minister to the Finance Minister everyone had acknowledged the undue burden put on the salaried persons but they did very little.
However, the height of insensitivity was that despite agreeing with the IMF to reduce the income tax rate on up to Rs1.2 million annual incomes from 5% to 1%, the federal cabinet set the rate at 2.5% to pay higher salaries to the federal government employees.
In the slab of up to Rs1.2 million annual earnings, there are 431,206 individuals who have been forced to pay 1.5% income tax over and above the threshold agreed with the IMF to pay higher salaries to the government employees.
To a question, the newly appointed Minister of State for Finance Bilal Azhar Kayani said that due to the federal cabinet's decision to increase the proposed salaries from 6% to 10%, the income tax rates were also increased. However, Bilal remarked that the standing committee may suggest reducing the proposed increase in salaries.
Hardly one million individuals will get direct benefit of Rs56 billion reductions. Out of the five slabs, the government reduced the rates for the first three slabs while leaving it unchanged for the last two slabs of 30% and 35% income tax rates.
About 387,345 individuals earning up to Rs2.2 million annually have been offered a 4% reduction in their income tax rates compared to the current 15% rate. Another 162,000 persons earning up to Rs3.2 million would receive a mere 2% reduction in the rates.
Langrial said that individuals falling in the two higher slabs of 30% and 35% will also get indirect benefit of reduction in the lower slab rates due to reduction in their effective income tax rates. According to the presentation, there are about 235,391 individuals falling in these two higher slabs.
The government also marginally reduced the income tax surcharge rate from 10% to 9% due to lack of fiscal space. Langrial said that the super tax rate for the medium sized firms is reduced by half percentage, admitting it was just aimed at giving signals rather than any relief. The estimated benefit is mere Rs2 billion.
The FBR chairman finally admitted that imposing 3% federal excise duty on immovable property in the last fiscal year was a "theoretical mistake and unjust". The government has proposed to abolish the duty in the budget. But those who proposed it and defended it till recently were still sitting in the same room with him.
In a meeting of the Senate Standing Committee on Finance that is also discussing the budget, Finance Minister Muhammad Aurangzeb backed a proposal to increase the retirement age of the federal government employees.
Senator Farooq H Naek advocated raising the retirement age of bureaucrats to save pension costs and said that a bureaucrat is fit and experienced at 60; instead of benefiting from experience, we retire them prematurely.
Senator Anusha Rahman pointed out that retired officers instantly join semi-government institutions and increasing the retirement age makes practical sense. The Finance Minister said that in the HBL the retirement age was 65 years and after the budget, he will evaluate this proposal seriously.
The finance minister made a surprising claim that the government has not imposed any new tax in the budget. However, contrary to the Finance Minister's claim that the government has slapped 5% new income tax on pensioners, Rs2.5 per liter carbon levy on petroleum products and car engine levy.
The finance minister said that the government proposed new tax measures worth Rs312 billion through compliance and enforcement.
The National Assembly Standing Committee on Finance also showed its dissatisfaction over the government's budget proposal to slap taxes on the digital economy, particularly cash on delivery.
"Our youth is already angry with us and you have put more burden on them", said Syed Naveed Qamar.
The Member Policy FBR Dr Najeeb Ahmad claimed that the 2% withholding tax on cash on delivery will be part of the cost of the product ordered online a stance that does not appear true.
To which Naveed Qamar said that if the claim was true, the committee would not object to the proposal. The committee members were of the view that the 2% cost would be paid by the purchaser, not by the seller.
The standing committee also asked the FBR to increase the cash withdrawal limit for collecting 0.8% tax from Rs50,000 to above Rs75,000. The Chairman FBR promised to look into the proposal. The committee also suggested that instead of charging an increased 20% income tax on interest earned on banking deposits, the FBR should introduce a new slab to charge 15% rate from the pensioners and small-income earners. The FBR did not oppose the proposal.
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