ISLAMABAD, May 23: In what appears to be an attempt to woo voters, the government has decided in principle to raise the income tax exemption limit and reduce the number of slabs for salaried and non-salaried taxpayers in the budget for 2012-13, sources say.

A senior official told Dawn on Wednesday that the exemption limit for the calculation of income tax had been proposed at Rs400,000 against the existing limit of Rs350,000. If approved, this would represent a major relief for the taxpayers, particularly for those with low incomes.

To provide more relief to the salaried taxpayers, the government has decided to exempt the initial Rs400,000 from tax. In other words, only the amount exceeding the threshold amount will be taxed.

Until 2006, the amount below the threshold was exempted from tax calculation but later on even this amount was made taxable.

The income tax exemption limit was raised to Rs350,000 from Rs300,000 in 2011-12, to Rs300,000 from Rs200,000 in 2010-11 and to Rs200,000 from Rs180,000 in 2009-10.

One reason for raising the exemption threshold was the increase in salaries of people in the last few years.

In the budget, the government will also propose an increase of 15-20 per cent in the salaries people. According to the official, raising the exemption limit and making the amount below the limit not taxable will serve to mitigate the effects of rising prices of goods and commodities.

He said the tax rate would be 7.5 per cent for the people with annual taxable income of more than Rs400,000 but less than Rs1 million. The number of salaried people falling in this category stands at 316,000 — 80 per cent of the total taxpayers registered with the income tax department.

Earlier, a rate of 10 per cent was proposed for this category. However, there was a pressure from the politicians to reduce the rate to give relief to the salaried and non-salaried taxpayers in the budget.

The government has proposed a new tax slab of 10 per cent on the taxable income exceeding Rs1 million but less than Rs1.5 million, a rate of 15 per cent on the taxable income exceeding Rs1.5 million but less than Rs2 million. The slab will be 20 per cent for people whose annual taxable income is above Rs2 million.

The official said that no decision had yet been taken regarding the introduction of three new tax slabs — for 25 per cent, 30 per cent and 35 per cent — for people with higher salaries.