The government reduced tax rates and a number of tax slabs in the budget for the fiscal year 2022–2023, but it also eliminated the provision for credit by eliminating the deduction for debt-related profits and the tax credit for investments in stocks, health insurance, and pension funds.
Both the new and old income tax rates for the salaried income group are shown below. After the budget has been approved, new income tax rates will be in effect.
The Federal Board of Revenue (FBR) declared this as a Revenue Measure in its document titled "Salient Features" under the heading "Omission of Deductible Allowance for Profit on Debt and Tax Credit for Investment in Shares, Health Insurance, and Pension Funds."
Business Recorder carefully examined the Finance Bill and discovered that the employed class's salary tax slabs had been reduced from 12 to 7.
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Different Categories of Salary Division:
The Tax Ordinance of 2001 states that a government or private sector employee's salary is divided into 4 categories:
It encompasses a large percentage of the total income that people are eligible to receive free of any tax deductions. It excludes all bonuses, allowances, and commissions as well.
House rent allowance (HRA), which makes up 40–45% of the total basic salary, is provided to salaried people as compensation for their furnished or unfurnished accommodation. Generally speaking, the HRA percentage varies depending on the organization.
For example, an employee is eligible to receive about Rs. 20,000–23,000 in HRA compensation on a basic salary of Rs. 50,000.
Governments or organizations usually provide 10-15% of the basic salary as a conveyance allowance for people who commute to their workplaces. For example, a person is eligible to receive a conveyance allowance of up to Rs. 5,000 on a basic salary of Rs. 50,000.
Some companies offer their employees medical, travel, entertainment, or other benefits depending on the job nature. The percentage of these varies depending on the nature and designation of the job and is usually not fixed. The Tax Ordinance of 2001 states that extra compensation in the form of allowances, bonuses, or commissions is generally not taxed.
Here is a brief overview of income tax rates for the previous fiscal year before the budget for 2022–2023!
As the end of the fiscal year draws near, Business Recorder would like to give its readers a quick overview of the current salary tax slabs.
The government made the decision to maintain the status quo on income tax rates for the salaried group in the prior budget announcement for Salary Tax Slabs 2021–22 Pakistan, which it claimed was intended to be pro–growth.
Individuals earning between 0 and Rs 600,000 per year are currently free from paying income tax (unless their salary income exceeds 75% of their taxable income).
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The table above provides details about tax rates in Pakistan for various income brackets. The tax on the next slab (those earning between Rs600,000 and Rs1.2 million per year) is 5% higher than in column 1.
To grasp this, imagine a person who earns Rs. 800,000. The service charge is 5% of Rs. 200,000 (Rs 800,000 - Rs 600,000 because that is the amount that exceeds column 1).
If annual earnings are Rs 1.8 million, then Rs30,000 plus 10% of the amount over Rs1.2 million is added (in this case, Rs 600,000). In this example, the annual tax due is Rs 30,000 + Rs 60,000 = Rs 90,000.
According to reports, the Finance Bill 2022 will include personal income tax reforms:
To finalize the new budget proposals with new taxation measures totaling Rs 400 to 450 billion for the upcoming fiscal year, Federal Board of Revenue representatives met with Prime Minister Shehbaz Sharif on Saturday. The meeting with the prime minister in Lahore included a detailed discussion of the initial budget proposal sketch.
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