Different proposals being mulled for revising pay scales

ISLAMABAD: Different proposals are under consideration for revising the pay scales by merging one or two ad hoc allowances into basic pay scales and then granting 5 to 10 percent increase in salaries and pensions of civil and armed forces personnel in the upcoming budget 2016-17.

One percent raise in salaries of public sector employees is estimated to cost the national exchequer Rs2.5 billion to the federal government alone, so the pay increase will depend upon the availability of resource envelop. 

The CPI based inflation stands at 2.8 percent on average in July-April 2015-16, so by linking the pay increase with the CPI basket will allow the government to increase salaries in the range of 5-10 percent after merging the existing one or two ad hoc allowances.

The House Rent Allowance (HRA), which is currently granted as 45 percent on the basis of minimum basic pay scale of 2008, might be transferred on the basis of minimum pay scale of 2015. The conveyance allowance may also be increased in the upcoming budget.

On the pension side, 80 percent pension amount is being consumed by retired military personnel while only 20 percent is utilised by civilian retired workforce.  The pension reforms remained a problematic area as none of the governments irrespective of dictatorial or democratic regimes in the last two decades had undertaken any serious efforts to introduce the reforms.

“Every financial year, the government utilised taxpayers’ money to pay pension amount runs into billions of rupees. Why the government does not establish a pension fund on the pattern of modern world and run it on professional lines instead of utilising taxpayers’ money to pay the pension liabilities,” said the official. 

Some efforts were made in the past to reform the pension but it failed to deliver any good on the ground. On pay increase, the Finance Ministry’s Regulation Wing prepared different proposals for Finance Minister Ishaq Dar as currently four ad hoc allowances are not part of basic pay scales. 

The ad hoc allowance provided in 2010 stands at 50 percent which will not be merged into basic pay scale. The second ad hoc allowance of 10 percent in 2013 may be merged into basic pay scales. 

The remaining ad hoc allowances of 10 percent in 2014 and 7.5 percent in 2015 is also under consideration to be merged into basic pay scale and then provide 5 to 10 percent raise in shape of fresh allowance in the upcoming budget.

Tax proposal for salaried class: The government is considering slapping 15 percent tax on non filers for each slabs of salaried class in the upcoming budget.  Currently, same tax rates apply for filers and non-filers of salaried persons. Most of them do not file returns.

At present, 309,941 salaried persons are filers and 1,038,193 are non-filers, reflecting a total of 1,349,134 salaried persons.  Tax deducted from filers amounted to Rs58.746 billion and tax deducted from non-filers stood at Rs20.713 billion so total amount stood at Rs79.460 billion.

The FBR proposed increasing tax rate by 15 percent for each slab for non-filers except low salary class. The FBR has estimated to generate Rs2.5 billion in the next financial year if the government grants green signal to this idea.

The annual exemption threshold for salaried class stands at Rs0.4 million. The tax has been charged above the annual threshold of Rs0.4 million. However, there is no proposal to increase the existing threshold for salaried individuals for the purpose of tax payments in the upcoming finance bill 2016-17.