KARACHI, July 17: A major flaw has been noted by tax experts in the calculation of tax slab rates for salaried persons for tax year 2013.

As a result of this error employers are in a quandary as to what rate of withholding tax should be applied for the month of July 2012. The National Assembly passed the Finance Bill 2012 without checking the accuracy of the calculation of five tax slabs introduced for salaried persons.

The government after raising basic exemption from Rs350,000 to Rs400,000 introduced five slabs for salaried persons.

Under these slabs the government gave major relief to salary income groups and was widely appreciated as an attempt to offset impact of high inflation and rapidly falling purchasing power of fixed income groups.

However, Tax Consultant Muhammad Aleem told Dawn on Tuesday that the methodology set out for each progressive slab rates as mentioned under Part 1A of First Schedule to the Income Tax Ordinance, 2001 suffers from legal infirmity which leads to divulge incorrect calculation and results in higher tax impact.

He explained that after the basic exemption of Rs400,000 the tax rate for salary income up to Rs750,000 is five per cent which comes to Rs17,500.

However, the tax rate for second slab with total salary income exceeding Rs750,000 to Rs1,500,000 is 10 per cent and its tax amount comes to Rs92,500 i.e. Rs17,500+Rs75,000 and not Rs95,000 as has been mentioned under the Part 1A of First Schedule to the Income Tax Ordinance 2001 for tax year 2013.

Similarly, Aleem said that for third slab with total salary income exceeding Rs1,500,000 to Rs2,000,000 the tax rate is 15 per cent and its tax amount will come to Rs167,500 i.e. Rs92,500+Rs75,000 and not Rs175,000 as mentioned in the national assembly approved schedule.

He further said that the fourth slab is also showing higher tax where total salary income exceeding Rs2,000,000 to Rs2,500,000 the tax rate is 17.5 per cent and its real tax amount will come to Rs255,000 i.e. Rs167,500+Rs87,500 and not Rs420,000 as being showing in the official tax schedule.

He urged the Federal Board of Revenue (FBR) to immediately correct the slabs and issue notification so that employers could deduct correct withholding tax from their employers July salary income.