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FBR Likely To Raise Salaried Sector Tax To 25 Percent

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This refers to the news item published on 25th April, 2011 in the Business Recorder with the heading ’FBR likely to raise salaried sector tax to 25 percent’. In the details this news item has been associated with the proposals given by the Institute of Chartered Accountants of Pakistan. This news item is based on Para 1.3 of the Budget Proposals of the Institute of Chartered Accountants of Pakistan which has been misunderstood and reported incorrectly resulting into a negative perception.

In fact, the Institute’s recommendation is not to increase the maximum tax rate applicable to Salaried Individuals (as reported) but to remove the disparity of the rates of tax on income of Non-Salaried Individuals by rationalizing the tax bands, enhancing the threshold of the maximum tax rate of 25% from Rs. 1,500,000 to Rs. 3,000,000 and to provide for the marginal relief as applicable in case of Salaried Individuals.

For your information a Corrigendum has been published by the Business Recorder today, for the rectification of the above as under:

This refers to the news item published in Business Recorder on April 25, 2011 titled "FBR likely to raise salaried sector tax to 25 percent". In the details this news item has been attributed to the proposals given by the Institute of Chartered Accountants of Pakistan (ICAP).

This news item is based on Para 1.3 of the budget proposals of the ICAP, which has been misunderstood and reported incorrectly.

In fact, the Institute's recommendation is not to increase the maximum tax rate applicable to salaried individuals but to remove the disparity of the rates of tax on income of non-salaried individuals by rationalizing the tax bands, enhancing the threshold of the maximum tax rate of 25 per cent from Rs. 1,500,000 to Rs. 3,000,000 and to provide for the marginal relief as applicable in case of salaried individuals.

It was incorrectly reported due to the misunderstanding of the ICAP budget proposals which in fact has recommended that the tax rate for non-salaried individuals should be rationalized to provide relief at par with that of the salaried individuals by increasing threshold for levy of maximum tax rate of 25 per cent from taxable income of Rs. 1,500,000 to Rs. 3,000,000 and to also provide marginal relief as in case of the salaried individuals. The original text of the ICAP proposals is reproduced hereunder:

"Discrimination of salaried and non-salaried persons by providing for separate tax rates is against the norms of personal taxation". "This clearly indicates that the law itself admits that non-salaried persons understate their income". "It is very odd that: A salaried person attracts the maximum tax rate of 20 per cent where the income exceeds Rs. 4,550,000 as compared to a non-salaried person who attracts the maximum tax rate of 25 per cent where the income exceeds Rs. 1,500,000; and a salaried person is allowed a marginal relief where the income marginally exceeds from a particular slab of income and tax thereon whereas a non-salaried person is not allowed any such relief.

Therefore, it is recommended that, "huge gap in maximum tax rate should be narrowed by expanding the non-salaried tax bands so that the maximum tax rate of 25 per cent starts at least from income above Rs. 3,000,000. "Non-salaried persons should also be allowed to claim marginal relief where the income marginally exceeds from a particular slab of income and thereon".

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posted @ 9:44 AM,

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