June 27, 2006	Tuesday	Jumadi-ul-Awwal 30, 1427

KARACHI, June 26: Although individuals and salaried class will get some relief from the measures announced in the budget 2006-07, in the absence of `marginal relief’ as given in the past a single rupee move-over from one slab to another will drastically enhance the rate of tax.

These were observed by tax experts who feel that more could have been done for fixed income groups, particularly the salaried class that is totally documented. The experts proposed that the new schedule should be made applicable for the tax year 2006.

Undoubtedly, there is some tax relief for the salaried class in the new budget, but in the absence of marginal relief even a rupee’s increase in income will push a person to higher taxable slab.

Citing an example, they say where the taxable income (gross) exceeds Rs600,000 but does not exceed Rs700,000 the tax rate would be at six per cent. This means that income tax will be Rs42,000. However, if the same person enters into the next slab even by an increase of a single rupee i.e. Rs700,001, the tax rate will move up to the next slab which is 7.5 per cent. This means the taxpayer will pay Rs52,500 towards income tax or Rs10,500 more simply on an increase of a single rupee.

All Pakistan Tax Bar Association (APTBA) President Younus Rizwani Sheikh told Dawn that this was totally against natural justice and the authorities should have taken in account the impact of such measures, as this would only deprive fixed income groups, particularly the salaried class of huge funds without getting any raise in their real income.

He said further that if a person’s annual salary is Rs1.5 million, he would be paying income tax at the rate of 12.5 per cent or say Rs187,500. However, if the same person gets an annual salary of Rs1,500,001 the tax rate would jump to 14 per cent and he would be paying a tax of Rs210,000 or Rs22,500 more.

Mr Rizwani said this would not only cause a brain drain, but would also work as a negative factor for the fixed income groups who mostly constituted the middle and upper middle class and worked as a buffer between the haves and the have-nots. The salaried class works as driving force in the development of a country, as most of the skills belong to this class, including engineers, doctors, technicians, accountants, lawyers, professors, etc.

He said if an individual’s annual salary had come to around Rs8.4 million, a 19 per cent tax rate would be applied which meant he would be paying Rs1,596,000 towards income tax. However, if he gets an annual salary of Rs8,400,001 then the tax rate will be 20 per cent and he will be paying Rs1,680,000 as income tax or Rs84,000 more on getting one rupee more towards his income.

“All this is against natural justice and the CBR should have introduced a marginal relief theory so that such discrepancy is avoided and the fixed income class is given real benefit to maintain their buying power,” the APTBA chief asserted.

Similarly, he said individuals and association of persons (AOP) would be suffering on same account, as they were also not given any ‘marginal relief’ on their income tax.

Citing an example, Mr Rizwani said if an individual’s annual taxable income comes to Rs300,000, the tax rate would be of five per cent or he would be paying Rs15,000 towards income tax. However, if his income increases by a rupee to Rs300,001, the tax rate will be 7.5 per cent or he will be paying Rs22,500 towards income tax or Rs7,500 more.

He said further that if an individual’s annual income stands at Rs600,000, his income tax would be deducted at the rate of 12.5 per cent or Rs75,000. However, if the same person’s income comes to Rs600,001, the tax rate would be 15 per cent or Rs90,000 will be deducted as income tax. This means that he will be paying Rs15,000 more only on moving to another slab by a single rupee increase.

The APTBA president was also critical of tax on income from property and said it had negated government’s slogan `the higher you earn the more you pay the tax’. But under the budget 2006-07, he said, persons making high income from property would be paying less tax and those earning less would be paying more tax.

Citing an example, he said that a person earning an income of Rs240,000 from property would be paying Rs5,798 towards income tax as per the tax year 2006. However, as per the tax year 2007, he would pay Rs12,000 towards income tax.

Against this, he said, a person earning an income of Rs600,000 from property would pay Rs52,950 towards income tax as per the tax year 2006, but the same would come down to Rs30,000 as per the tax year 2007.

Giving another example, Mr Rizwani said in case income from property per annum came to Rs1,000,000, the income tax as per the tax year 2006 would be Rs125,830, however, the same would come down to Rs50,000 under the tax year 2007.