KARACHI, July 31: The formula of marginal tax relief introduced by the Federal Board of Revenue (FBR) for salaried persons is not only defective but also cause negative impact on tax in many income slabs where slight changes take place due to increase in the pay and allowances.

In the light of amendments made to Finance Act 2008 for taxation of salaried taxpayers the basic exemption for such persons has been enhanced from Rs150,000 to Rs180,000. For the women taxpayer this limit will be Rs240,000. The tax slabs have also been revised.

In the past there was a built-in marginal tax relief system for salaried persons but about three to four years back this was removed and the salaried persons, whose income slab changes marginally due to increase in the pay and allowances, faced hardship as with switching over to the next slab tax liability increases disproportionately.

Consequently, the FBR through circular No. 06 of 2008 came up with the concept of marginal tax relief to address the hardship of the salaried persons.

However, tax consultants express apprehensions about the working of the concept because in many cases after a change in salary slab it does not provide the expected tax relief to a taxpayer.

The Finance Act has revised slabs up to 20 for salaried persons to be charged to tax at different flat rates ranging from zero to 20 per cent on progressive income slabs.

However, this will be applicable from the tax year 2009. But for withholding purposes these will apply to salaries paid on or after July 1, 2008.

Similarly, there are five marginal rates ranging from 20 per cent to 60 per cent applicable at each progressive marginal increase in salary income on the basis of pay and allowances.

Qazi Anwar Kamal, a tax consultant, said that in cases where the taxable income exceeds Rs180,000 but is less than Rs250,000, the tax rate is 0.50 per cent. When this salary slab moves to next one by a small amount of Rs10,000 at Rs260,000 the tax liability under normal rate of 0.75 per cent would come to Rs1,950.

He further said that it is surprising that the marginal tax relief mostly give relief to higher salary income slabs but for lower salary slabs its impact is adverse and a taxpayer would be paying more tax under the new formula.