The Federal Board of Revenue (FBR) is actively working on a budget proposal to change the highest tax brackets for salaried taxpayers in the upcoming budget (2013-14). Sources told Business Recorder here on Sunday that FBR is analysing a proposal to adjust top existing tax slabs of salaried class. The idea is to increase the tax slabs for salaried class by splitting last higher bracket into further brackets with progressive increase in tax rate.
Another option is to revise tax rates for 2-3 highest slabs of the salaried class to generate additional revenue from persons falling in highest tax brackets.
By revising highest tax brackets, top income earners would have to pay more tax. The proposal is based on the fair policy that people earning extraordinary incomes on account of salaries should pay more tax as compared to persons earning less salary. Tax authorities have drafted this proposal at the Board's level which is yet to be approved by policy makers.
The FBR suffered revenue loss because of a major relief provided to salaried taxpayers in the last budget. Now, the FBR intends to make up for revenue shortfall from salaried class.
Sources further told that earlier, FBR had increased the number of tax slabs from five to six for the salaried class through amended Finance Bill 2012 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.
Earlier tax relief has been provided to all salaried persons falling in six slabs under the amended Finance Bill 2012. 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. At present salaried class has been taxed under the following slabs:-
Persons earning taxable income of Rs 2,500,000 and above have been subjected to a flat tax rate of 20 percent. Salaried persons covered under the highest tax slabs are already earning huge incomes, therefore, it is proposed that higher bracket of tax slab may be further split up into further slabs having higher rate of tax where income increased proportionately.
The budget makers have proposed that salaried persons in the highest slabs of taxable income should be contributed their right share of taxes to the national exchequer. The proposal is based on the fair policy that people earning extraordinary incomes on account of salaries should pay more tax as compared to persons earning less salaries.
In the present slabs progressive way of taxation has been adopted 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.
In the proposed changes in the tax slab the last slab for salaried taxpayer 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 shall be modified in a manner to increase the tax rate for salaried class taxpayers earning more income, sources added.
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Slab Taxable income in rupees Rate of tax
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1 0 to Rs400,000/- 0%
2 Rs400,000/- to Rs750,000/- 5% of the amount of exceeding Rs400,000/-
3 Rs750,000/- to Rs1,500,000/- Rs17,500/- + 10% of the amount of exceeding Rs750,000/-
4 Rs1,500,000/- to Rs2,000,000/- Rs95,000/- + 15% of the amount of exceeding Rs1,500,000/-
5 Rs2,000,000/- to Rs2,500,000/- Rs175,000/- + 17.5% of the amount of exceeding Rs2,000,000/-
6 Rs2,500,000/- and above Rs420,000/- + 20% of the amount of exceeding Rs2,500,000/-=====================================================================================================
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