No relief: Proposed wage hike gets icy response

Tax liabilities are much higher than net incomes for several govt officers.

ISLAMABAD:

In a traditional government office, crammed with dust-covered files, grade 19 civil servant Naeem Ali* speaks about the ad-hoc salary proposed in the new budget with a grim expression.

Like several other government officers, Ali, who works in an attached department of the defence ministry, worries the pay rise will be a burden rather than a relief due to the tax liabilities that will come with it. For many of them, tax deduction is much higher than their net incomes.

The government had announced a 10% ad-hoc relief allowance for government servants in the outgoing fiscal year, revising Ali’s salary up by Rs4,300. His ‘take home’ salary, however, only rose by Rs1,250 after falling into the higher tax slab – which pushed his monthly tax liabilities to Rs4,100 from Rs1,050.

Like the outgoing year, the government is considering giving a 10% increase in salaries for the upcoming fiscal year in the shape of ad-hoc allowance.

“I am worse off this year than the previous year, because the increase is not enough to absorb the shock of inflation,” Ali said, while showing his pay slip which carries four ad-hoc allowances, given during the last four years. To the disadvantage of civil servants, most of the allowances are paid on the pay scales of 2007 and 2010, which are aimed at reducing their benefits.

Ali got another shock when the PML-N government refused to extend the 20% federal secretariat allowance to employees working in attached departments despite clear instructions by the Islamabad High Court (IHC) to treat all federal employees equally.

To avert IHC pressure, Finance Secretary Dr Waqar Masood sent a summary to Finance Minister Ishaq Dar suggesting the 20% allowance be extended to all federal government employees. But the summary never came back for implementation.

Meanwhile, like previous years, the salaried class, which comprises 40% of Pakistan’s total workforce will see no relief from their tax burdens in the upcoming budget.

Sources said Dar refused to consider a proposal to reduce tax liabilities of salaried persons for fiscal year 2014-15. The proposal was moved by the Federal Board of Revenue (FBR), they added. According to the sources, the mood in the Q-block – the seat of the finance ministry – is that since federal government employees got a net 67% increase in salaries over the last five years, no further relief should be extended to them.

Salaried people are taxed on their gross incomes, unlike the business class which pays income tax by excluding expenditures from their earnings.

FBR officials admit that the businessmen often claim bogus expenditures to understate their incomes. They said the bureau is incapable of verifying their statements. Under the current self-assessment mechanism, FBR has to accept whatever income and expenditures are declared by the business class, until a case is selected in a random audit.

Unlike salaried people, the corporate sector and the stock market brokers will see their tax liabilities going down in the upcoming budget. On the other hand, the finance minister is unwilling to consider proposals for giving relief to a class which does not have any lobbyists to plead its case.

(*NAME HAS BEEN CHANGED TO PROTECT IDENTITY)

Published in The Express Tribune, May 26^th, 2014.