Tax relief for salaried class likely to be withdrawn

KARACHI: The government may withdraw income tax concessions granted to the salaried individuals in the upcoming budget as the collection from the head sharply fell in the first nine months of the current fiscal year with revenue mobilisation pressure building up ahead of $6 billion IMF bailout deal, sources said on Saturday.

The sources said the government is considering to restoring previous tax rates for salaried individuals in the budget following a massive decline in collection. The Federal Board of Revenue (FBR) collected Rs53.48 billion as income tax from salaried individuals during July-March 2018/19 as compared with Rs95.15 billion in the corresponding period of the last fiscal year, showing a significant 44 percent decline.

In April last year, the government allowed concessions to salaried individuals falling under slabs of Rs800,000 and Rs1.2 million, through Income Tax (Amendment) Ordinance 2018. The new rates were announced to be applicable from July 1, 2018. That was a major relief for the salaried class by the previous Pakistan Muslim League-Nawaz with the tax threshold having increased to Rs1.2 million from Rs400,000.

A nominal tax amount of Rs1,000 per year was however levied on salaried individuals deriving annual income between Rs400,000 to Rs800,000 and Rs2,000/year for individuals having annual income between Rs800,000 and Rs1.2 million in order to encourage filing of returns. Number of return filers is lurking below two million.

The break-up of revenue collection from salaried individuals showed that the income tax collection from the federal government employees sharply fell 60 percent to Rs4.17 billion in the July-March period.

The collection amounted to Rs10.37 billion in the corresponding period of the last fiscal year. The contribution of tax by provincial, semi-government and corporation employees declined 53 percent to Rs5.7 billion during the first nine months of the current fiscal year. It stood at Rs12.16 billion in the same period of the last fiscal year. Income tax collection from salaries in the private sector stood at Rs43.59 billion in the period under review. That fell 40 percent from Rs72.61 billion collected from the private sector’s salaries in the corresponding period of the last fiscal year.

The FBR estimated around Rs50 billion in revenue shortfall during the current fiscal year due to reduction in tax rates for salaried individuals.

The IMF also recommended the government to withdraw exemptions and concessions granted recently to various individuals and sectors. Pakistan and the IMF reached a staff-level agreement for 39 month extended fund facility program. The IMF’s board is yet to approve the loan program, linked with prior actions, including revenue mobilisation.

The ministry of finance tax rates on salary income were considerably reduced as the threshold was increased to Rs1.2 million from Rs400,000 in the Finance Act 2018.

“These changes brought about a substantial decrease in the withholding taxes collected through various government and private withholding agents,” the finance ministry said in a presentation in March 2019. “Revenue impact of the change remained Rs32.4 billion during the period from July 2018 to February 2019. It is estimated that total revenue loss on this account would be around Rs50 billion in the current financial year.”