June 14, 2019 (MLN): In its first revenue focused budget, the PTI government decided to revoke prejudiced concessions and exemptions with focus on enhancing direct taxation and tightening the lasso around the tax evaders to improve country’s tax to GDP ratio and encourage investment.
Keeping in view country’s low tax to GDP ratio which is a serious concern, the government has revised the tax rates for salaried and non-salaried individuals. This step will contribute the largest share to the new revenues as the government has to achieve the huge revenue target in the next fiscal year.
Proposed measure for broadening of income tax base in budget 2020 will surely worse-off salaried class as the breakdown of new tax measures divulges that the government expects additional funds worth Rs 258 billion from income tax and provided only Rs 500 million relief income tax which is the lowest relief in any budget during the decade.
Clearly the budget document suggests that the salaried class will bear significant brunt of this severe tax plan as with facing higher prices of some necessity items and everyday goods, the salaried persons will now have to bear a cut in their disposable income. In addition, the tax-exempt salary income has been increased from Rs400,000 to Rs600,000 per annum for tax year 2020.
In the case of salaried persons, the government not only increased number of tax slabs from 7 to 12 but also increased the maximum rate of income tax to 35% from 29%, where income exceeds Rs.75,000,000 per annum.
While for non-salaried persons, deriving income exceeding Rs400,000, eight taxable slabs of income with tax rates ranging from 5pc to 35pc have been introduced.
Contrary to this, the rates for big taxpayers-corporate sector have been kept unchanged at 29% for the tax year 2019 and onwards.
Not all is bad in the budget 2020, as government has also taken some good steps which includes 10% increase in net pensions, 10% rise in basic salaries for grade 1-16 employees of the civil government and equivalent army personnel and 5% for grade 17-20 officers. However, this increase in salaries seems to be an adjustment against the increased taxation, as the rise in salaries is likely to be counterweight by increased tax on salaried class.
This suggests that in real term there will be no impact on government servants of grade 1 to 16. However, employees in the private sector will be affected badly as they are bound to pay the income tax at increased rates.
It is a disturbing reality that devaluation and inflation have already increased the cost of (essential) goods and utility bills just to mention a few. Adding insult to injury, salaried persons particularly in private sector are uncertain about whether their salaries would be revised up or not and if it would revise then at what extent. Keeping this in view, it will be difficult for a salaried person to run its kitchen and bear day-to-day expenses.
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