THE budget 2006 is around the corner. Everyone expects it to bring some relief from economic hardships and mounting inflationary pressure. The salaried persons with fixed incomes seek a much better treatment.

Educational expenses: The salaried people are compelled to spend sizeable amounts from their limited salary on the educational needs of their children (which primarily is the duty of the state) and yet, no tax credit or relief is available under the Income Tax Ordinance, 2001. However, in the old law relief was available up to Rs36,000.

This portrays the apathy of the government towards the salaried persons who constitute the overwhelming majority of the middle-class. On the other hand unprecedented tax breaks and benefits have been extended to the rich.

The salaried persons should be eligible to deduct their entire educational expenses provided they furnish receipts of fee and other expenses.

Liberal incentives should be extended for investment in education to business houses so that they can make their workers highly skilled and educated. Educational allowance should be tax-free and not be considered as perquisites.

Medical expenses: Health insurance is another important area that needs to be promoted through liberal tax incentives. At present free provision to employees of medical treatment or hospitalisation or both by an employer or the reimbursement received by the employee of the medical charges or hospital charges or both paid by him, where such provision or reimbursement is in accordance with the terms of employment is tax free [provided that National Tax Number of the hospital or clinic is given and the employer also certifies and attests the medical or hospital bills].

Alternately, any medical allowance received by an employee not exceeding ten per cent of the basic salary of the employee if free medical treatment or hospitalisation or reimbursement of medical or hospitalisation charges is not provided for in the terms of employment, is tax exempt. However, if an employee spends more than these fixed limits, he has to pay tax on it, which is highly unjust.

Since the medical expense is treated as perquisite, any amount exceeding 50 per cent of salary is taxed in the hands of the employer. This tax position needs to be rectified. Medical expenditure should not be treated as a perquisite as it is not something in the nature of fixed benefit or amenity periodically accruing from the employer to the employee.

The employers should be encouraged through tax benefits to extend medical facilities to their employees/dependents. Such expenditure should neither be treated as perquisites nor as taxable receipt in the hands of the employees.

Conveyance allowance: The present limit of tax-free conveyance allowance of Rs3600 is dismally low. Salaried persons travel long distance to earn their livelihood. They incur substantial amount out of their pay on such travel to and from office. Limit of tax-free conveyance allowance should be fixed at Rs24,000 per annum.

The petrol price in 1982 was Rs5.05 while diesel rate was Rs3.15 per litre. Now these have gone up to Rs59 and Rs34, showing an increase of 1180 and 1079 per cent, respectively. If we go back to 1990, when petrol price was at around Rs14 and diesel at around Rs11 per litre, we will find they have risen by 421 and 536 per cent. By fixing a non-taxable allowance of Rs3,600 for conveyance, the tax functionaries have exposed their ignorance about the cost of commutation these days.

By using public transport for reaching work place and back home, a commuter often spends Rs40-50 on transportation. If the amount is multiplied by working days in a year (Rs40x300 days), the travelling cost in a year comes to Rs12,000, whereas the present limit for exemption is prescribed at Rs3,600 which is obviously unjust.

Interest-free loans: Section 13(7) of the Income Tax Ordinance, 2001 taxes the notional benefit arising out of riba-free or concessionary loans given to employees which is violation of Article 25 and 38(f) of the Constitution. It is against Article 38(f) that requires the State to eliminate riba as early as possible and against the declared official policies in respect of:

(a) providing relief to the salaried class; (b) promoting housing industry and (c) extending affordable loans and advances to low-income groups.

This provision is also against all norms of law, justice and equity. It is pertinent to mention that the Central Board of Revenue (CBR) under the repealed the ordinance of 1979 issued a circular letter 4(8)IT-J/91 dated June 30, 1991 opining that, “it is not desirable to tax such notional income...”. The same should be restored.

Threshold limit: Salaried people should not be taxed unduly as they cannot claim any kind of expenditure against their pay, though they expend some part of it purely for employment purposes. In their case, the minimum taxable threshold should be more than other persons who can claim a host of tax deductible amounts. They should not be taxed up to gross taxable salary of Rs2000,000 and tax slabs in their case should be as under:

Rs200,001 to

Rs300,000 Five per cent;

Rs3000,001 to

Rs600,000 15 per cent;

Rs600,001 and above 25 per cent.

The salaried class deserves a far better tax deal by appropriate tax relief for expenditure incurred on their children’s education and health care of family members. These facilities are the responsibility of the state. Their income should be taxed rationally and in no way should it be to their disadvantage.

All such expenses that are actually incurred wholly and exclusively for the performance of jobs, should be allowed as a deduction. An engineer working for an industry needs to spend a lot to keep his knowledge updated, yet no provision is available to him for claiming cost of expensive manuals and books, and the same is true for other professionals deriving income from salary.

The benefits and relief available at present should be given to all salaried persons and the present extra tax burden in the case of employees earning Rs600,000 or more should be withdrawn [if it is not possible then perquisites and allowances in their case should be taxed as a separate block at graduated scale ranging from 5—15 per cent].

This is hampering growth of the commercial, financial, industrial and service sectors where specialization is the call of the hour. For example in IT industry any highly paid software engineer, capable of bringing enormous foreign exchange, would be discouraged to work in Pakistan merely for this unjust tax burden.

There is an urgent need to review and rationalise our tax policies towards the salaried class. They contribute substantially towards economic growth and social development and we should not harm their productivity by regressive and unjust tax measures.

As the late Nani Palkhiwala in his book,” We the Nation,” rightly said that ‘the budget is a harbinger of good times to come’; one hopes Budget 2006 will address at least some of the key issues pointed above to provide much-needed relief to hard-pressed salaried class.