Taxes

News — August 22, 2013

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The Answer is a Blunt ‘NO’!!

“Tax” has been a very controversial issue in Pakistan over the years. There has been an impression that Governments purposely put a major Tax burden on the Lower & Middle Class Salaried Individuals, whilst giving exemptions to the Corporate Sector, Industrialists & High-earning Individuals.

It is an unfortunate one bitter fact that out of a Workforce of over 60 Million, only around 2 Million pay Taxes, which as per World Standards is ‘Pathetic’, dare I say. In June-1999, Pakistan had a very healthy Tax-to-GDP Ratio of around 14%. In a span of 14 years, Pakistan has one of the World’s Lowest Tax-to-GDP Ratio of around 8.4%. Any state which has a Tax-to-GDP Ratio of 8% is considered to be a Failed State. What we’ve noticed, and very painfully, the ability of the State of Pakistan to collect Taxes has diminished by around 50%, which indicates the decay in our Economic System.

Ever since the new Government of PM Nawaz Sharif took over the reigns, it is being propagated that the Government would not Tax the Industrialists or the Corporate Sector but put the major share of the Burden on the Lower/Middle-Class Salaried Persons to shore up the Government’s Revenues. But, according to the Finance Bill 2013 that was passed by the National Assembly, all these negative propagation have been proven wrong.

The Finance Bill 2013, prepared by the Finance Minister Ishaq Dar, in my opinion, focuses mostly on Taxing the High-Earning Individuals, therefore, instead of 6 Income Tax Slabs, 11 Income Tax Slabs have been introduced to rationalize Tax Collection. The Income Tax Slabs are as follows:

  • Where the Taxable Income does not exceed Rs 400,000, Rate of Tax is 0%.
  • Where the Taxable Income exceeds Rs. 400,000 but does not exceed Rs 750,000, Rate of Tax is 5% of the amount exceeding Rs 400,000.
  • Where the Taxable Income exceeds Rs. 750,000 but does not exceed Rs 1,400,000, Rate of Tax is Rs. 17,500 + 10% of the amount exceeding Rs 750,000.
  • Where the Taxable Income exceeds Rs. 1,400,000 but does not exceed Rs 1,500,000, Rate of Tax is Rs. 82,500 + 12.5% of the amount exceeding Rs 1,400,000.
  • Where the Taxable Income exceeds Rs. 1,500,000 but does not exceed Rs 1,800,000, Rate of Tax is Rs. 95,000 + 15% of the amount exceeding Rs 1,500,000.
  • Where the Taxable Income exceeds Rs. 1,800,000 but does not exceed Rs 2,500,000, Rate of Tax is Rs. 140,000 + 17.5% of the amount exceeding Rs 1,800,000.
  • Where the Taxable Income exceeds Rs. 2,500,000 but does not exceed Rs 3,000,000, Rate of Tax is Rs. 262,500 + 20% of the amount exceeding Rs 2,500,000.
  • Where the Taxable Income exceeds Rs. 3,000,000 but does not exceed Rs 3,500,000, Rate of Tax is Rs. 362,500 + 22.5% of the amount exceeding Rs 3,000,000.
  • Where the Taxable Income exceeds Rs. 3,500,000 but does not exceed Rs 4,000,000, Rate of Tax is Rs. 475,000 + 25% of the amount exceeding Rs 3,500,000.
  • Where the Taxable Income exceeds Rs. 4,000,000 but does not exceed Rs 7,000,000; Rate of Tax is Rs. 600,000 + 27.5% of the amount exceeding Rs 4,000,000.
  • Where the Taxable Income exceeds Rs. 7,000,000, Rate of Tax is Rs. 1,425,000 + 30% of the amount exceeding Rs 7,000,000.

Majority in the Pakistani Labour Force earns in the range of Rs. 10,000 to Rs. 62,500 per month & the Maximum Tax Rate applicable for this Income Range is a ‘Negligible 5%’.

Whereas, in our neighbouring country, India, which has a healthy Tax-to-GDP Ratio of 15% +; the Income Tax Rates are as follows:

  • Where the Taxable Income does not exceed Rs. 200,000, Rate of Tax is 0%.
  • Where the Taxable Income exceeds Rs. 200,000 but does not exceed Rs 500,000; Rate of Tax is Rs. 10% of the amount exceeding Rs 200,000.
  • Where the Taxable Income exceeds Rs. 500,000 but does not exceed Rs 1,000,000; Rate of Tax is Rs. 30,000 + 20.0% of the amount exceeding Rs 500,000.
  • Where the Taxable Income exceeds Rs. 1,000,000, Rate of Tax is Rs. 130,000 + 30% of the amount exceeding Rs 1,000,000.

Pakistan Income Tax Reform introduced in the Finance Act 2013, is more rational & friendlier towards the Lower/Middle-Income Salaried Persons.

The reason there is lot of hue & cry on the Taxation Reforms, is our non-willingness to pay Taxes. Despite not paying Taxes, the Citizens of Pakistan expect the Government to provide them Security, better Economic Conditions, better Infrastructure, better Educational System, and so on and so forth. But how does one expect the Government to provide all these, when it’s Revenues are hit by non-compliance of the Public.

Pakistan is our Country, it’s our primary Social Responsibility to support the Government by fulfilling our Duties & then expect the Government to deliver, and still if it doesn’t, then only can we truly hold them accountable. If we’re to come out of the Menace of Foreign Loans, then every Citizen must stand up & take responsibility to pay their Due Taxes & help the State to stand on it’s own feet.

Courtesy: Tariq Vaid from Pakistan Speaks