June 10, 2006	Saturday	Jumadi-ul-Awwal 13, 1427

KARACHI, June 9: The new budget has created a lot many ambiguities and what was being initially understood has now turned out to be totally different. Tax consultants feel that the proposed tax measures are more punitive towards poor and low income groups rather than on rich and high income class.

The tax practitioners have cited a number of such tax measures proposed in the budget for 2006-07, which have given further relief to affluent and higher income class and have put more burdens on poor and lower income groups.

Mushtaq Ahmed Vohra, auditor and tax adviser, told Dawn that the new budget proposals had reduced the effective rate of tax on rental income from 25 per cent to five per cent only.

Giving details about the computation of tax on rental income, he said for individuals the rate of tax was 35 per cent and under the law any person driving rental income was allowed 1/5th of rental income in allowances which came to around seven per cent of 35 per cent.

Furthermore, Mr Vohra said a landlord was also allowed six per cent in collection charges (wages to Munshi) on rental income which came to around three per cent of 35 per cent. Therefore, total impact comes to around nine or 10 per cent, which means that an individual or landlord is paying 25 per cent as effective rate of tax on rental income that has now been reduced to five per cent only.

Against this, he said, lower income people who used to supplement their monthly income through rental income by letting out their small houses or portion of houses would now have to pay five per cent tax. In the past, they were allowed exemption of Rs100,000 from tax but the new budgetary measure five per cent tax is mandatory upon all category and class of income groups.

Mr Vohra suggested that there should have been a threshold on such rental income in order to give relief to low income poor who rent out portion or whole of their property to supplement their monthly income. But now everyone irrespective of his level of income will have to pay five per cent tax on rental income.

Another major flow in the law is that people earning huge income out of rent have to file a statement only and not even income tax return. After abolishing wealth tax the government also removed the condition of filing wealth statement which allows big landlords to own properties worth millions of rupees and collect huge renal income.

“I would say by no means it could be said to be a budget for poor, as it does not in any way give relief to downtrodden masses who are hard pressed with high cost of living and soaring prices of essential commodities of daily use,” another tax consultant Qazi Anwar Kamal said.

He said the increase in withholding tax on transport business from two per cent to six per cent proved that general public travelling by public transport would have to pay more towards fares.

It is the poor who travel by public transport and when the owners of vehicles will have to pay four per cent more towards withholding tax they will ultimately charge commuters who are already under tremendous pressure of high cost of living.

The transport business has already been operating on a very narrow profit margin and because of ever-rising POL prices there has been a frequent increase in haulage charges for the transportation of goods as well as fare charges.

According to traders, lately they had been experiencing difficulty in getting trucks for the haulage of goods from Karachi to the upcountry and this indicated that due to higher cost tucking business was not growing and in coming days acute problem would arise due to a wider gap between demand and supply.

Mr Kamal said the new budget instead of giving relief to the export trade had further put a burden on it. In the past, he said, exporters were exempted from two per cent contribution towards the Workers Welfare Fund (WWF), out of their taxable income.

However, the budget 2006-07 imposed this tax on exporters who will have to pay two per cent towards the WWF out of their imputable income. The exporters have been so far paying only 0.1 per cent to 1.5 per cent, depending upon the category of exports, towards their final tax liability. However, now they will have to pay two per cent towards the WWF out of their imputable income, he added.