KTBA proposes higher salary exemption

KARACHI: The Karachi Tax Bar Association (KTBA) has suggested the federal government to increase the tax-exempt threshold on income from salary to Rs1 million from the current Rs600,000 in the upcoming budget for FY2025-26.

The association in its budget proposal focused on reforms in direct and indirect taxation to foster a fair, efficient and taxpayer-friendly regime. According to the KTBA, this revision is essential to reflect the impact of recent inflation and to offer relief to salaried individuals burdened by the rising cost of living.

The KTBA emphasised that the existing salary income exemption limit is outdated and fails to account for the economic challenges faced by the salaried class in recent years.It noted that despite soaring inflation, the current exemption threshold has remained stagnant, creating undue pressure on low- to middle-income earners.

It said that tax on income from salary has become disproportionate, especially when compared to other sources of income where deductible expenses are allowed. Currently, individuals earning salaries are not allowed to claim any expenses incurred in the process of earning that income.

It recommended that salaried individuals be allowed a flat 15 per cent deductible allowance, similar to the deductions granted against rental income, to cover commuting and other unavoidable job-related expensesIt said that recent amendments (May 2024) to appellate mechanisms under the Income Tax Ordinance, 2001 and Sales Tax Act, 1990 introduced pecuniary jurisdiction and timelines to streamline the appeals. However, the changes have exacerbated confusion for litigants and appellate forums alike, with superior courts raising valid concerns over procedural impracticalities.

The reforms, if not failed, have not delivered the promised efficiencies, instead creating further delays and hardships to taxpayers, it said.

The KTBA has already proposed to review the appellate framework immediately to align statutory expectations with ground realities and human constraints by way of its previous engagement dated April 15.Also, to incentivise the pending tax disputes, it is prudent to provide a scheme that mandates only eligible tax payment and waives ineligible taxes, penalties, etc, it suggested

To enhance transparency and curb sham notices, the association proposed extending the barcode system (already mandated for income tax) to sales tax communications. This would ensure authenticity, traceability and accountability in departmental correspondence, it said.It also added that the existing 1.25 per cent turnover tax stifles SMEs, startups and loss-making entities. Reducing it to 0.75 per cent could reduce aggravation in challenging situations.