The PTI-led government will be required to amend the Finance Act 2018 for reversal of Rs 100 billion relief provided to the salaried class by the Abbasi-led administration in the budget for the current fiscal year. Sources in the Finance Ministry and FBR said that so far no instruction from the government has been received to reverse the tax relief and added that as the relief was provided through the Finance Act it can only be undone through amending the Finance Act and not through issuance of a notification, an income tax circular, an order or SRO.
The government requires a simple majority to pass the budget from the National Assembly and does not need its approval from the Senate so the new government can easily make changes in the Finance Act through an amended Bill, sources added.
Sources in the FBR told Business Recorder that total revenue from income tax for the individual category and salaried class is over Rs 203 billion and half of that was lost in the budget for current fiscal year through providing relief to the salaried class.
The FBR and Finance Ministry had opposed the proposal during the budget preparation exercise for 2018-19, but the then government did not heed their views, sources added.
The FBR would support any move for reversal of tax relief provided on the income of salaried class. There is need to mobilize more revenue to reduce the budget deficit instead of providing relief in taxes as widening fiscal deficit is one of the major challenges for the economy, said sources in the Finance Ministry.
"The Finance Ministry will support any measure that may contribute to a revenue increase and help minimize the budget deficit," added a senior official of Finance Division.
Finance Ministry officials termed the previous government's decision to reduce income tax rates as pre-poll rigging without taking account of economic considerations. They added that during the first four years of its tenure the PML-N government made no serious effort to broaden the tax base but at the tail-end of its tenure it caused a considerable dent to revenue collection by providing a big tax relief.
FBR tax collection will further decline with income tax relief provided to salaried class which is deducted at source and with no effort on the part of the tax authorities, Finance Ministry officials added.