Highest bracket of Rs 4,550,000 income: FBR suggests enhancement in tax rate to 25 percent

The Federal Board of Revenue has proposed enhancement in the income tax rate from 20 percent to 25 percent for salaried persons whose taxable income falls within the highest bracket of Rs 4,550,000. Sources told Business Recorder here on Wednesday that under the existing tax structure on salaried persons, where the taxable income exceeds Rs 4,550,000, the rate of tax would be 20 percent.
The highest tax slab for salaried persons is 20 percent, which is applicable on persons earning taxable income of over Rs 4,550,000. The income of over and above Rs 4,550,000 per annum is earned by persons, who seemed to have the capacity to pay tax. Out of the total 18 tax slabs applicable on salaried persons, the highest income bracket is Rs 4,550,000 which is subjected to 20 percent tax slab.
The FBR is likely to propose to the Ministry of Finance that the highest tax slab of 20 percent to be enhanced to 25 percent in cases where the taxable income is over Rs 4,550,000. The rationale behind the proposal is not to enhance the tax on the salaried class and most of the tax slabs would remain unchanged. However, the only highest slab of 20 percent, where people are drawing huge amount of monthly income and have potential to pay tax, may be enhanced in the coming budget (2011-12). In case the FBR finalise the proposal, the same would be forwarded to the Ministry of Finance for consideration. The FBR may not touch the remaining tax card of the salaried persons in budget (2011-2012).
In case government accepts the proposal, the highest tax rate of salaried persons would be line in with the maximum tax rate of ''business individuals'' and Association of Persons (AOPs).
The last meeting of the Revenue Advisory Council (RAC) headed by Dr Hafiz Pasha has opposed the idea of enhancement in the tax rate for salaried class. During last budget (2010-11), in order to provide tax ''relief to the lower income groups, the basic exemption thresholds was revised upwards to Rs 300,000. It is worth mentioning that the computation of tax in the case of salaried persons is governed under the provisions of sections 12, 13 and 14 of income lax Ordinance 2001 read with rules 3, 4, 5, 6 and 7 of the Income Tax Rules 2002.
In cases where salary income constitutes more than 50 percent of the total income of a taxpayer the total income of such taxpayers is chargeable to income tax at the rates provided in para (1A) of Part 1 of the First Schedule, All perquisites, allowances or benefits, except those covered under Part-I of the Second Schedule to the Ordinance, are to be included in the salary income. The basic exemption for salaried person was enhanced from Rs 200,000 to Rs 300,000. These changes were brought through Finance Act, 2010 and applicable for the Tax Year 2011. However for withholding purposes these have applied to salary paid on or after July 1, 2010.