The government, just a few weeks ago, announced huge relief for salaried persons by increasing the minimum taxable income to Rs 1.2 million a year. However, this increased threshold meant that around 0.5 million or 44% of the individuals would slide off the tax net.

Now, upon the request of the Federal Board of Revenue, the government has reversed its decision of increasing the minimum threshold. According to the latest reports, the minimum taxable income has been set at Rs 0.4 million a year – same as it was before announcing the relief.

The New Tax Rates

According to the amendment in the tax bill, the income tax will be charged at following rates;

Rs 1,000 tax to be introduced for incomes slabs Rs 400,001 to Rs 800,000 (yearly)

Rs 2,000 for income ranging from Rs800,001 to Rs1,200,000 a year.

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Before this latest amendment, Miftah Ismael while announcing the budget told;

Tax rates on individuals have been lowered. Complete tax exemption has been given to people who earn up to Rs 1.2 million a year or Rs 0.1 million a month. This exemption limit, which was previously Rs 0.4 million a year, has been increased three times to Rs 1.2 million a year. Tax will be levied at the rate of 5 percent for the income between 0.2 and 0.4 million monthly.

He further added;

People earning above 0.4 million monthly will be taxed at the rate of 15 percent. In Pakistan highest tax burden was on the salaried middle-class which include teachers, doctors, lawyers, nurses, accountants. Reduced tax rates will significantly lower tax burden on this class.

Pakistan’s tax net is already pretty much thin with only 1.2 million people under the tax net. This is roughly only 0.6% of the total population of Pakistan that exceeds the 200 million mark.

What’s interesting is that a PMLN Senator, Musadiq Malik, had justified that providing this tax relief would only have a minor impact on tax revenues and would give relief to the salaried class who were poor or belonging to the lower middle class. He claimed that the effect of Rs 80 billion in terms of relief was a minute one if we were to consider the total revenues of over Rs 4000 billion.