- Tax exemptions for individuals earning Rs400,000 to Rs1.2m per annum likely to be withdrawn
In an effort to increase the tax revenue in line with the International Monetary Fund (IMF) requirements, the Pakistan Tehreek-e-Insaf government, apart from introducing new taxes, is likely to end tax exemptions to salaried individuals earning Rs400,001 to Rs1.2 million per annum.
Ministry of Finance, while preparing the next budget, is considering to re-impose the income tax slabs of 2017-18 that included income tax rates from 2pc to 35pc plus a fixed amount of tax.
In case the tax slabs are reversed, the government will be collecting an additional revenue of Rs100 billion, which was lost due to exemptions introduced by the previous government in April 2018.
While presenting the last budget, the Pakistan Muslim League-Nawaz government had introduced income tax exemptions to those earning Rs400,001 to Rs1.2 million per annum. However, it later added a fixed amount of Rs1,000 for individuals earning Rs400,001 to Rs800,000 and Rs2,000 for the annual income of Rs800,001 to Rs1.2 million per annum. The fixed tax of Rs1,000 and Rs2,000 was introduced to avoid reducing the number of filers (1.26 million).
By increasing the income tax exemption slab from Rs400,000 to Rs1.2 million per annum, the previous government had eroded 521,597 income tax return filers from the tax base, a 42pc of the existing tax base, according to the calculations of the Federal Board of Revenue.
The PTI government, later, through a supplementary budget in September 2018, had maintained the exemptions for individuals drawing a yearly income of Rs400,001 to Rs1.2 million while introducing some changes in the remaining slabs of income tax.
According to sources, the finance ministry has started consultation to reintroduce the previous income tax range of 2pc to 15pc for individuals of Rs400,001 to Rs1.2 million per annum income, as it may add over Rs35 billion to the FBR’s tax revenue.
In case the previous income tax regime is restored, the income tax rates for people earning from Rs1.2 million to Rs2.4 million would be 10pc to 17.5pc in addition to a fixed amount. The tax for this slab was reduced by the previous government to 5pc, causing a reduction of over Rs20 billion in the FBR’s income.
In the previous tax slab, the tax for the income category of Rs2.4 million to Rs4.8 million was in the range of 17.5pc to 27.5pc, in addition to a fixed amount of tax. The PML-N government in its last budget had reduced the tax for this slab to only 10pc.
As per the tax slab of 2017-18, for those earning over Rs4.8 million annually, the income tax rate was in the range of 27.5pc to 35pc plus Rs6 million tax for the highest slab. The tax for this slab was reduced by the previous government to only 15pc, causing a hit of around Rs40 billion to FBR.
It may be recalled that prior to the Finance Act, 2018, the minimum threshold of taxable income for individuals was Rs400,000, whereas the maximum tax rate was 30pc and 35pc for salaried and non-salaried individuals respectively. Through the finance act, rates for both salaried and non-salaried individuals were unified and the minimum threshold of taxable income was increased to Rs1,200,000. However, a nominal tax rate of Rs1,000 was imposed on income between Rs400,000 to Rs800,000 and Rs2,000 on income between Rs800,000 to Rs1,200,000.