KARACHI: The federal budget proposals presented on Friday are not expected to ease the pressure on the family budget of tax-paying salaried middle class in the country.

Some meek effort in the budget seems to be directed towards penalising non tax filers and clipping the discretionary powers of tax officials but these are insufficient to alter the orientation of regressive tax regime.

The ratio of direct and indirect taxes to total revenue generation is expected to perpetuate the existing tax structure, which burdens families who spend almost all they earn and whose consumption basket is full of products under sales tax net.

Despite high income disparity, direct taxes constitute about 40pc of the total tax collection. (To avoid embarrassment the government has stopped reporting on disparity indicators in the Pakistan Economic Survey).

A Dawn informal study found that the two extremes in the social scale are not impacted as severely by the budget because poor families pay significantly less or no income tax and their consumption comprises of generally tax-free bare essentials. They normally pay a flat charge or little for utilities. On the other extreme, the rich consume only a portion of their income so the impact of expenditure tax as a percentage of income is less on this category. Besides, the opportunity cost of amount they pay in taxes is less, as it is not at the cost of family comforts. The poor are provided relief and the minimum wage has been increased from Rs12,000 to Rs13,000. But in the middle income bracket except for the government employees, who were awarded 7.5 per cent increase in salary, the rest have no hope of any improvement in their pay package.

A reckoned family budget of a middle class nuclear family with monthly earnings falling in the income bracket of Rs70,000 to Rs180,000 was developed with weighted key expenditure heads based on an informal survey.

The impact of the budget 2015-16 was assessed against each head and arrows signify the change. As there is no change in income tax rate except for the lowest slab that was slashed by 2pc, the tax incidence for the middle class as a proportion of their income will remain unchanged.

The kitchen budget will increase by the rate of inflation and so will be rent, transport and utilities. For fixed income salaried families, it means lesser savings.

Published in Dawn, June 6th, 2015

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