Contrary to claims: Tax burden grows heavier for low salaried people

Government gives relief to the high income individuals at the expense of smaller pay cheques.

ISLAMABAD:

Contrary to its claim of “taxing the rich” in times of economic crisis, the federal government on Thursday admitted lessening tax on people earning as high as Rs2.1 million to Rs5.5 million annually; while increasing  tax burden on comparatively low salaried people earning Rs0.6 million to Rs1.7 million annually.

This was revealed by Federal Board of Revenue (FBR) Chief Income Tax Policy Dr Muhammad Iqbal who was briefing the Senate Standing Committee on Finance.

The government, however, marginally increased the tax rates for people earning more than Rs5.5 million. But this increase is far below the rate of increase for lower middle class. The government has estimated generating Rs4.5 billion additional revenue by this raise in income tax rates for the salaried class.

Dr Iqbal maintained that the relief was given to the higher income groups to address an anomaly in the last budget that increased the tax burden on these classes –a claim that is contrary to the ground realities. This is the second such disclosure where the tax relief has been provided to the higher income groups. Earlier, the new government reduced the tax rates on dividend income of banks from 35% to 25%.



According to a FBR presentation, the effective tax for people having annual income from Rs600,000 to below Rs700,000 will be Rs12,500, which is Rs2,500 or 25% higher than outgoing year’s liability.

Those earning above Rs700,000 to less than Rs800,000, will have to pay over a third more than outgoing year’s liability; as their effective tax will be Rs20,000 as against Rs15,000 of this year. For the category of Rs800,000 the tax liability will be Rs27,500 – an increase of 22.3%, for Rs900,000 annual income the effective tax will be Rs37,500 – an increase of 15.4%, for Rs1 million group the effective tax will be Rs47,500 – an increase of 11.8%.

On Rs1.1 million income the tax is Rs57,500 with an increase of 9.5%, on Rs1.2 million the tax is Rs67,500 – an increase of 8%, on Rs1.3 million the tax is Rs77,500 – showing an increase of 6.9%, on Rs1.4 million the tax is 90,000 – an increase of 9%, for Rs1.5 million the tax is Rs102,500 with an increase of 8%, for Rs1.6 million the tax is Rs115,000 with an increase of just 4.5% and for Rs1.7 million income the new tax liability is Rs127,500 with a meager increase of just 2%.

The government has maintained the tax burden for those earning Rs1.8 million to Rs2 million as these people will still be paying Rs140,000 to Rs170,000 annually as income tax.

Relief has been provided to those earning from Rs2.1 million to Rs5.5 million as their tax burden has been lessened by 2% to 44%. The maximum reduction has been given to those earning Rs2.5 million who will now be paying Rs270,000 per annum tax as against the outgoing year’s tax liability of Rs420,000.

Likewise, for people earning in between Rs2.6 million to Rs3 million the effective tax burden has come down to the range of 38.7% to 33% respectively. The higher the income, the higher is the relief.

However, the government increased the tax burden on those earning from Rs5.6 million to Rs6.5 million and above in the range of 1.5% to maximum 6% or in absolute terms this wealthy club will be paying Rs17,500 to Rs55,000 per annum more than what they paid this year.

Published in The Express Tribune, June 21^st, 2013.