Pakistan

Explainer: salary income tax

Explainer: salary income tax

Miftah Ismail would surely have a wry smile on his face. What should actually be looked as a relief to salaried class under normal circumstances is getting the most flack of all the budget steps. Speaking in strict sense, the salaried class will surely be worse off come the next fiscal year. But then FY19 budget was presented by a government virtually on its last legs, with all eyes on winning elections.

The PTI government though, cannot get scot free for facing some of the flak, as it did have the opportunity to reverse the move that was almost bordering on ridiculous, when it presented those mini budgets months after coming to power. It did not. And the step is being viewed for its inflationary nature. It sure will reduce the disposal income of the salaried class falling in the slabs above, and quite drastically at that. Read it with the overall inflation trends, and low growth, which means no to low increase in salaries for most employees, and you understand the wrath.

The revenue impact of these measures, as per back of the envelop estimates, could fall between Rs100-120 billion. This is a significant figure in these times of fiscal crunch. The government has done well to restore the number of slabs to previous 12 from just five announced by Miftah last year. It gives a fairer sense of proportionate taxation, than FY19’s salary tax slabs.

For all categories, barring the highest one above Rs75 million annual income, the effective tax rate, is lower than FY18’s. So the salaried class is subject to lower tax than two years ago, and significantly higher than last year.
People have short memories. Just as no one seems to remember how petrol has been priced higher in the country’s history, they would not recall paying more taxes on salaries just a couple of years ago. And that is where the government’s has been found wanting, failing to undo Miftah’s mischief in its early days.

It might be a tall order, but it would not hurt if one of those days, the government comes up with a ballpark number on percentage of people falling in each category. That would provide more fodder for research and more accurate assessment of the inflationary impact this will create. But Miftah wouldn’t care. He is all smiles.

Copyright Business Recorder, 2019