Govt withdraws income tax hike for lower salary brackets

Any fall in projected revenue will be overcome by increase in withholding tax on use of cellular phones.

ISLAMABAD:

On Saturday, the government withdrew the proposed increase in income tax rates for salaried individuals having annual income up to Rs2.5 million while also taking back 17% sales tax planned to be charged on stationary, milk products and bicycles.

In the budget 2013-14, the government had marginally increased tax rates for people earning more than Rs5.5 million, which was far below the rate of increase for lower middle-class. The government had estimated generating Rs4.5 billion additional revenue by increasing tax rates for the salaried people.

While winding up the budget debate that continued for a week in the National Assembly, Finance Minister Ishaq Dar also announced reducing income tax rate on rental property and gave 40% rebate in income tax to teaching staff by withdrawing earlier proposals of taxing the teachers and professors at normal rates.



In a bid to neutralise the impact of these tax concessions, the government announced to increase the withholding tax rate, being charged on mobile bills, by 5,000 basis points to 15% against existing rates of 10%.

The decision to reduce income tax rates for salaried persons and on rental income, withdrawal of sales tax on various products were taken to address the anomalies in the budget, which were highlighted by members of the National Assembly and the media, said Dar.

Contrary to its claim of taxing the rich, the government had actually lessened the tax burden on people earning as high as Rs2.1 million to Rs5.5 million annually, while increasing the tax burden on comparatively lower salaried people earning Rs0.6 million to Rs1.7 million annually. However, the concessions extended to people earning between Rs2.1 million and Rs5.5 million will remain as it is.



“Benefiting the middle-income groups and a higher tax liability for higher-income groups are in line with the intended reforms. The first outcome is painful for low-income groups and is not consistent with our intended reform,” maintained Dar.

He said the government has accordingly revised the tax slabs and decided that the tax liability of individuals earning between Rs400,000 and Rs2.5 million annually will not be increased for the next year, as they will be taxed at the rates specified in the finance bill of the outgoing fiscal year. According to a official of the Federal Board of Revenue (FBR), it will be made sure that the income tax rates of people earning up to Rs2.5 million annually will remain the same in absolute terms. The correction will cause a loss of Rs2.5 billion in revenue projections.

After criticism by the parliamentarians, the government backtracked on the proposal of increasing taxes on income from rental property, which currently was taxed at 10%. By proposing four new slabs, the government has increased the rates up to 17.5%. However, it has decided now to have two slabs taxed between 10% and 15%. This relief will result into a loss of a billion rupees in projected revenue.

Dar also announced giving 40% rebate in income tax to researchers and teachers by withdrawing the proposal of taxing them at normal rates. Earlier, the government was giving 75% rebate in taxes. Dar said the purpose of reducing rebate limit was to discourage misuse of the facility.

The finance minister also announced to take back the proposal of withdrawing zero rating facility from stationary, milk, dairy products and bicycles. Due to withdrawal of tax exemptions these sectors were subject to pay 17% tax on sales. Only in the case of stationary, the prices were bound to go up 20%.

While talking to The Express Tribune, FBR Chairman Ansar Javed said these concessions will not have adverse implications on next year’s revenue target of Rs2.475 trillion. He said the move to increase the withholding tax rate on use of cellular phones will generate over Rs14 billion, which will set aside the impact of concession that Dar announced in his budget speech.

Dar claimed that cellular phones rates have been revised upwards in consultation with all the stakeholders. He said the amount will be adjustable at the time of final income tax payments.

Dar also announced to extend the facility of free education for the students of Malakand, Kohistan and Dera Ismail Khan, which had been excluded at the time of announcement of the budget.

On the issue of giving FBR access to bank accounts, Dar said the government has decided to allow access despite objections by the parliamentarians. In order to safeguard the privacy of the account holders, the government has tightened the controls. Only the chairman of the FBR and members of the FBR will have access to this information, Dar added.

He said in the case of privacy breach, the individual who leaked the information will be sentenced to one year in prison and be liable to pay a fine of Rs500,000.

Published in The Express Tribune, June 23^rd, 2013.

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