Govt contemplating decreasing income tax rates for salaried class in upcoming budget

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ISLAMABAD: The incumbent government is contemplating to decrease income tax rates for salaried class individuals in the upcoming budget, aiming to reduce the highest slab rate to 20 percent.

This would translate into a tax relief of around Rs67 billion for the salaried class, reported Express Tribune.

If this plan gets approved, it will result in a 43 percent decrease for the highest income group and a 90 percent fall in tax burden on the lowest income group.

Sources, however said this plan could face opposition as there were worries how this measure may hurt the government’s revenues and efforts to widen the already narrow tax base.

This envisaged Rs67 billion tax relief is still below the Rs100 billion being recommended by the Prime Minister Shahid Khaqan Abbasi during in-house meetings, revealed the sources.

The PM’s recommendation outlays a Rs100 billion tax relief to be provided to the salaried class, disclosed sources.

The constricted tax base remains a major worry for every stakeholder and less than half a percentage point of the overall population of 1.261 million people or entities filed their tax returns for tax year 2017, as per Active Taxpayers List (ATL).

And PM believes reducing tax rates would entice more individuals to come into the tax net realm.

But this recommendation was rejected outright by the tax regulator Federal Board of Revenue (FBR) and it has formulated a different workable plan.

As per the FBR plan, it has recommended income tax exemption threshold to be set at Rs500,000, officials said.

And for income crossing the Rs500,000 threshold, a tax rate of 1 percent has been recommended for the bracket of Rs500,001 to Rs800,000 by FBR, said sources.

If these recommendations are enacted, this would result in the tax burden declining by a whopping 90 percent for this salaried bracket individuals.

The tax regulator has also recommended a 2 percent income tax rate for people earning between Rs800,001 to Rs1.2 million.

And those earning an income above Rs1.2 million yearly, the FBR recommended a tax slab ranging between 15 to 20 percent which if approved would translate into a 43 percent tax relief.