Salaried class: FBR increases number of tax slabs to six

SOHAIL SARFRAZ

ISLAMABAD: The Federal Board of Revenue (FBR) has increased the number of tax slabs from five to six for the salaried class through amended Finance Bill (2012-2013) on the conscious policy decision of the government for provision of minimum tax relief to persons in the highest brackets of taxable income that is Rs 2,500,000 and above.

Sources told Business Recorder here on Sunday that the tax relief has been provided to all salaried persons falling in six slabs under the amended Finance Bill (2012-13). The maximum tax relief has been provided to the first three slabs in the amended Finance Bill. However, less tax relief has been given to persons in the highest tax slabs.

The persons earning taxable income of Rs 2,500,000 and above have been subjected to the flat tax rate of 20 percent. The salaried persons covered under the highest tax slabs are already earning huge income and they have been provided minimum relief under the revised tax slabs for the salaried class. The persons earning taxable income of Rs 2,500,000 and above have only been given tax benefit of basic exemption limit that is Rs.400,000. The remaining income has been made taxable by slapping flat rate of 20 percent on the persons earning taxable income of Rs 2,500,000 and above.

Tax authorities have departed from the traditional and old method of imposition of tax on the salaried class by introducing a new methodology to give relief to all salaried persons keeping in view the quantum of annual taxable income.

Sources said that it was a clear policy directive of the government for providing minimum relief to the salaried persons falling in the highest tax slabs. These persons are earning enormous amount of income and they have been provided less relief as compared to the persons in the lower tax brackets as per the revised Finance Bill. Following the government's directive, the budget makers of the Federal Board of Revenue (FBR) consecutively spend several days and nights to revise the taxable slabs of income in such a manner that the taxpayers earning huge income like Rs 2,500,000 and above should be provided less tax relief.

The government has also directed the FBR that the persons in the highest slabs of taxable income should be provided some relief and calculation formula should be devised in such a way that such persons be provided less relief. The tax officials engaged in the formulation of direct tax policy have successfully completed the task and slabs number four, five and six have been carefully drafted to implement government's policy.

It was a very tricky task for the tax managers to give relief to the persons under the highest tax slabs, but this relief should be minimal. The revised six slabs have been formulated in view of the government's policy that people earning extraordinary salaries should pay more tax as compared to persons earning less.

The progressive way of taxation has been adopted in the first three slabs i.e. where taxable income is Rs zero to Rs 400,000, the rate of the tax would be zero percent. Where taxable income is Rs 400,000 to Rs 750,000, the rate of tax would be 5 percent of the amount exceeding Rs 400,000 and where taxable income is Rs 750,000 to Rs 1,500,000, the rate of tax would be Rs 17,500 +10 percent of the amount exceeding Rs 750,000. Thus, maximum tax relief has been given in the first three slabs.

Under the amended Finance Bill (2012-13), as per slab number five of the salaried class, where taxable income is Rs 2,000,000 to Rs 2,500,000, the rate of tax would be Rs 175,000+17.5 percent of the amount exceeding Rs 2,000,000. The figure of tax has been carefully worked out on the basis of the government's policy for providing less tax relief to the persons falling into the highest slabs. The calculation has not been merely done on the basis of the taxable income and tax rates in the first three slabs.

Whereas the highest slabs like 5 and 6 have been created with due deliberations and calculations to given very little tax relief to persons covered under the highest tax slabs. The tax relief has been provided to the persons under slabs number 4, 5 and 6. But, the extent of relief is less as these persons are earning very huge amount of income.

Sources said that the whole exercise of the FBR to expand the tax slabs from five to six has been done to strictly follow the government's instructions to provide maximum tax relief to the taxpayers earning income in the following range: Where taxable income is Rs zero to Rs 400,000; where taxable income is Rs 400,000 to Rs 750,000 and where taxable income ranges Rs 750,000 to Rs 1,500,000.

On the other hand, reasonable tax relief has been provided to the persons where taxable income is Rs 1,500,000 to 2,000,000 and where taxable income is Rs 2,000,000 to Rs 2,500,000. The nominal tax relief has been provided to the persons earning taxable income is Rs 2,500,000 and above.

Under the amended Finance Bill (2012-2013), the FBR has increased the number of tax slabs from five to six, reducing the revenue loss of the government. The amended Finance Bill (2012-13) has given the following new six slabs for the salaried persons:- Where taxable income is Rs zero to Rs 400,000, the rate of the tax would be zero percent. Where taxable income is Rs 400,000 to Rs 750,000, the rate of tax would be 5 percent of the amount exceeding Rs 400,000; where taxable income is Rs 750,000 to Rs 1,500,000, the rate of tax would be Rs 17,500+10 percent of the amount exceeding Rs 750,000; where taxable income is Rs 1,500,000 to 2,000,000, the rate of tax would be Rs 95,000+15 percent of the amount exceeding Rs 1,500,000; where taxable income is Rs 2,000,000 to Rs 2,500,000, the rate of tax would be Rs 175,000+17.5 percent of the amount exceeding Rs 2,000,000 and where taxable income is Rs 2,500,000 and above the rate of tax would be Rs 420,000+20percent of the amount exceeding Rs 2,500,000.