Tax collection from salaries down 24pc to Rs1.6bln in Jul-Jan

KARACHI: Income tax collection from salaries of executives and directors fell 24 percent to Rs1.67 billion during the first seven months of the current fiscal year of 2018/19 as changes in taxation and slowdown in private sector caused revenue decline, sources said.

The collection of income tax from salaries of directors and executives amounted to Rs2.2 billion in the corresponding period of the last fiscal year.

Large Taxpayers Unit (LTU) Karachi, which is the major revenue collection arm of the Federal Board of Revenue (FBR), has jurisdiction over big volume corporate entities and their executives and directors.

A tax official said slowdown in corporate earnings was the primary reason for decline in salaries of executives and directors.

The official added that the previous government made significant changes to taxation on salaried class in the Finance Act 2018. The salary tax was reduced for lower income group and it benefited individuals in the higher slab.

The present government, through the Finance (Supplementary) Act 2018, made further changes to salaried class taxation, which also impacted the collection of income tax under the head.

An FBR official said the government has maintained first four slabs out of six slabs as introduced through Finance Act 2018, but the Finance Supplementary (Amendment) Act 2018 enhanced tax rates and the slabs were increased to seven.

“The changes to slabs revised for salaried and business individuals have been applicable from July 1,” an official at the Federal Board of Revenue said.

The Federal Board of Revenue said the amendment would not result in an increased tax incidence on salaried individuals who earn income up to Rs2.5 million or up to Rs208,333 per month.

Individuals drawing more than Rs2.5 million in salaries a year have to bear impact of higher taxation introduced through the mini-budget in retrospective effect from July 1.

A salaried individual drawing income above Rs208,333/month would face higher tax incidence as a result of changes introduced through an amendment into the Income Tax Ordinance 2001.

They said those who fall in slab of taxable income would also pay the differentials from July 1 although the amendment was applied from October 10. The FBR has already directed employers to recover the differential tax amounts.

The LTU Karachi collected Rs264 million in January from salaries of executives and directors as against Rs393 million in the same month of the last year.

The unit has jurisdiction over 3,000 high salaried individuals who are associated with top companies in Pakistan.

The Large Taxpayers Unit Karachi sources said the unit launched scrutiny of income

tax return filed by the executives and directors to determine and avoidance or evasion

of tax.

The sources said some companies transferred their profits to the salaries of directors in order to reduce their income tax liabilities.

The reduction in corporate tax rates and increase in tax rate for higher slab of salary individuals, however, made the practice unattractive.

Corporate tax rate has been reduced to 29 percent over the past five years from 35 percent. On the other hand, tax rate for higher slab was increased to 25 percent.