Budget 2012-13: FBR mulling over marginal tax regime revival

ISLAMABAD: One of the budgetary proposals for 2012-13 is to revive the marginal tax regime for all those sectors, enjoying tax exemptions under Income Tax Ordinance 2001.

Sources told Business Recorder here on Friday that the FBR is examining a budget proposal to specify some kind of marginal tax for sectors subjected to tax exemptions under the provisions of the Income Tax Ordinance 2001. In this regard, the FBR has issued instructions to the Chief Commissioners of Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) to give their budgetary proposal on the 'marginal rate of tax regime for all those sectors which are enjoying exemptions uptill now'.

The FBR will examine the relevant Schedule of the Income Tax Ordinance 2001 to identify sectors which could be subjected to marginal rate of income tax in coming budget (2012-13).

Sources said that the proposal may result in indirect withdrawal of certain exemptions allowed under the Ordinance 2001. Thus, it would make mandatory for the exempt taxpayers to pay tax at some lower rate. One of the possibilities of margin rate of taxation would be applicability of tax at the average rate between the exempt and taxable income.

According to sources, the concept of the marginal tax regime was available in the repealed Income Tax Ordinance 1979. Later, this marginal tax relief was restricted to the salaried persons and business individuals whose income is exempted up to a certain limit. The FBR is now talking about the possible revival of the marginal tax regime which requires amendment in the First Schedule of the Income Tax Ordinance, 2001. Under the concept of margin tax regime, a marginal relief is available to the taxpayers up to a certain limit and tax is applicable over and above the specified marginal tax limit. A reduced rate of tax is available under the marginal tax regime for different categories of taxpayers.

When contacted a tax expert said that presently, salaried class is enjoying marginal relief on computation of income tax where the lower bracket income has been marginally increased and tax levied on higher bracket or tax slab. This has been evident from the First Schedule of the Income Tax Ordinance 2001.