Budget 2017-18 and salaried class

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Dr Ikramul Haq;
Majority of the Pakistanis would certainly be dejected after hearing the budget speech of Mr Ishaq Dar on May 26, 2017. Not because there will be no relief for them — nobody expects it now in Pakistan — but the real cause of disappointment would be continuation of unjust tax system that takes away large sum of income of the salaried person. The burden of regressive taxes is continuously increasing on the less privileged classes, especially on the salaried people. On the contrary, the rich and mighty are paying meagre amounts. The members of militro-judicial complex and parliamentarians are enjoying extraordinary tax-free perks and benefits — nobody speaks about this ruthless wastage of taxpayers’ money. Out of 90 million active and unique mobile users (total SIMs issued till March 31, 2017 were 139,108,964 but many individuals have multiple SIMs), only 1.1 filed tax returns this year. How many of these 90 million have taxable income? Federal Board of Revenue (FBR) has never tried to find out. Say 70 million have no income or income below taxable limit, yet they are paying 14 percent advance income tax. Out of twenty million having taxable income, around 2.5 million are ultra-rich — they are either not filing tax returns or showing much lower income than what they actually earn. This is evident from the fact that one million persons possess sprawling bungalows, two million expensive cars and about 600,000 go for holidays to attractive places every year. FBR has failed to tax them according to their ability to pay. This is the real failure of tax apparatus. Consequently, the main incidence tax, through 70 withholding taxes, is shifted to those who have no income or income below taxable limit of Rs. 400,000! Amongst them salaried class is the worst affected. They pay full tax on salary, then out of taxed money, pay advance tax on mobile and even tax with fee of their kids!!The salaried people are compelled to spend sizeable amounts from their salary on the educational needs of their children (which primarily is the duty of the State) and yet no tax credit or relief is available under the Income Tax Ordinance, 2001 (in the old law relief was available up to Rs 36,000). This portrays the apathy of our government towards the salaried class that constitutes overwhelming majority of the middle-class in the country. On the contrary unprecedented tax breaks and benefits have been extended to the wealthier echelons of society. The salaried persons should be entitled to deduct the entire amount of educational expenses incurred by them provided they furnish receipts of fee and other expenses. The government must give liberal incentives for educational investments to industrial houses so that they can make their workers highly skilled and educated. Educational allowance should be tax free and not be considered as perquisites. We can change the fate of our nation in a few years if education-related tax benefits are made core of the government’s tax policy. Health insurance is another important area that needs to be promoted through liberal tax incentives. At present free provision to the employee of medical treatment or hospitalization or both by an employer or the reimbursement received by the employee of the medical charges or hospital charges or both paid by him, where such provision or reimbursement is in accordance with the terms of employment is tax free (provided that National Tax Number of the hospital or clinic is given and the employer also certifies and attests the medical or hospital bills). Alternately, any medical allowance received by an employee not exceeding ten per cent of the basic salary of the employee if free medical treatment or hospitalization or reimbursement of medical or hospitalization charges is not provided for in the terms of employment is tax exempt. Medical expense should not be treated as a perquisite as it is not something in the nature of fixed benefit or amenity periodically accruing from the employer to the employee.
The employers should be encouraged through tax benefits (double of the amount expended) to extend medical facilities to their employees and dependents on them. This will help the government to reduce its healthcare burden.

Section 13(7) of the Income Tax Ordinance, 2001 taxes the notional benefit arising out of interest-free or concessionary loans given to employees which is violative of Article 25 and 38(f) of the Constitution. This provision of law should be deleted as it is against the basic principles of the Constitution.

Salaried individual should not be taxed unduly as they cannot claim any kind of expenditure against their emoluments, though they expend some part of it purely for employment purposes eg having good outfits etc. In their case minimum taxable threshold should be more than other persons who can claim a host of tax deductible amounts. They should not be taxed up to gross taxable salary of Rs 600,000. Tax slabs in their case should be rationalised: Rs. 600,001 to Rs. 1,000,000, 5 percent, Rs 1,000,001 to Rs 2,000,000, 15 percent and on Rs 2000,001 and above, 25 percent.

All professionals working on salary basis have to spend money to keep their knowledge up to date, yet no provision is available to him for claiming cost of buying manuals and books. This is hampering growth of the commercial, financial, industrial and service sectors where specialization is the call of the hour. For example in IT industry any highly paid software engineer, capable of bringing enormous foreign exchange for the country, would be discouraged to work in Pakistan merely for this unjust tax burden. There is an urgent need to rationalize our tax policies towards the salaried persons — both professional and non-professionals. They contribute substantially towards economic growth and social development and we should not harm their productivity by regressive and unjust tax measures.