Policy-makers have once again conveniently ignored the plight of salaried people, already struggling hard to survive against the rising tide of inflation. Just to mention a few, they have been deprived of existing concessions, benefits and exemptions e.g. tax-free utilities allowance/free house rent allowance equal to 10 and 45 per cent of basic salary respectively
THE proposed taxation of salary income on gross basis, for the first time in the sub-continent since the introduction of income law in 1886, will increase the tax burden on lower and middle income groups, especially when notional benefits like free or concessional loans are includable in employees’ income.
An analysis of the Finance Bill 2006 shows that “promise” of substantial relief made to salaried persons, especially low-paid employees, has not been fulfilled.
On the contrary, a vast majority of salaried persons presently below taxable threshold of Rs100,000 will now pay tax because of withdrawal of exemptions on various allowances, perquisites and benefits. The shifting of tax base from net salary to gross salary will certainly increase tax burden of lower and middle income groups.
The Bill seeks to withdraw all kinds of benefits, concessions and exemptions presently available to salaried class (draft amendments in Income Tax Rules 2002 through SRO 596(I)/2006 dated June 5, 2006 already notified). It also proposes to delete clause (38), Part I of the Second Schedule to the Income Tax Ordinance, 2001 providing exemption up to 10 per cent of basic salary in respect of provision of utilities etc.
The sole exemption retained is clause (139), Part I of the Second Schedule to the Income Tax Ordinance, 2001 relating to medical treatment or hospitalisation or both as per terms of employment (this facility is scarcely available to private sector employees) or in its absence, medical allowance up to 10 per cent of basic salary.
Taxation on gross salary is a bad example of regressive taxation as evident from Table 1.
The so-called “simplification” of salary taxation by raising taxable limit to Rs150,000 with tax rates ranging from 0.25 to 20 per cent on the gross salary is merely a technical adjustment – from relief point of view just an eyewash.
It will not benefit the overwhelming majority of salaried persons who fall in lower and middle income groups.
Tax rates proposed for salaried persons with effect from July 1, 2006 [Table 2] shows that presently, those already below taxable limit would now have to pay tax, as in their case all tax-free allowances/perquisites have been made taxable.
Someone getting Rs70,000 per month is faced with tax increase of 13.6 per cent while another deriving Rs750,000 enjoys tax reduction of 22.8 per cent. Those earning Rs60,000 per month will have additional tax burden of 13.7 per cent. Certainly, the salaried class deserved a far better tax deal than what budget 2006-07 has offered.
Policy-makers have once again conveniently ignored the plight of salaried people, already struggling hard to survive against the rising tide of inflation. They have been deprived of existing concessions, benefits and exemptions e.g. tax-free utilities allowance/free house rent allowance equal to 10 and 45 per cent of basic salary respectively, in addition to relief up to Rs36,000 on educational expenditure of children, just to mention a few.
On the contrary, unprecedented tax breaks and benefits have been extended to the wealthier echelons of society.
If not the same benefits, at least |the salaried persons (lower income groups) should be entitled to deduct expenses incurred on educational and medical needs of their families before paying tax.