In a decisive move, senators have rejected the proposed increase in tax rates for the salaried class in the 2024-25 budget, following a comprehensive review of contributions from various sectors.
The Senate Standing Committee on Finance and Revenue unanimously opposed the hike after the chairman of the Federal Board of Revenue (FBR) revealed striking disparities in tax contributions. The salaried class contributes a substantial Rs375 billion to the national exchequer, whereas exporters pay a mere Rs90-100 billion annually. Furthermore, the approximately 3.6 million retailers across the country collectively contribute only Rs4-5 billion in taxes each year.
This glaring inequity in the taxation regime incited the senators’ discontent, leading them to firmly reject the proposed tax increase for the salaried segment. During the session, FBR Chairman elaborated on the fiscal measures proposed for the next fiscal year, including an 18% general sales tax (GST) on packaged food items such as pulses and rice. However, he assured that unprocessed and unpackaged food items would remain exempt from GST.
FBR Chairman briefed the senators during its extensive day-long meeting at the Parliament House, where they worked on finalizing recommendations for the Finance Bill 2024-25. He noted that prices for packaged milk and infant milk had seen an increase and suggested that a phased GST could be considered if companies pass on benefits to consumers.
The senators also endorsed a ban on foreign tours for non-filers, aligning with their broader goal of equitable taxation. However, they appeared divided over the FBR’s proposal to transition exporters’ income to the normal tax regime from the previous preferential rate of 1%. Senator Farooq H Naek of the PPP strongly supported the move, arguing that if non-salaried individuals could contribute up to 45% of their income, exporters should not receive such incentives.
In contrast, Committee Chairman Senator Saleem Mandviwalla, also from the PPP, opposed the FBR’s proposal. He warned that such measures might deter exporters from bringing dollar inflows into the country, potentially harming the economy.
FBR Chairman defended the proposal from an equity and fairness perspective, emphasizing that increasing tax rates for exporters and retailers would significantly boost revenue. He estimated that shifting exporters to the normal regime would generate an additional Rs125 billion in revenue, while better integrating retailers into the tax net could increase their contributions to Rs50 billion annually, up from the current Rs4 billion.
The FBR chairman further outlined the revised tax slabs for the salaried class. For individuals earning between Rs600,000 and Rs1,200,000 annually, the effective tax rate would rise from Rs1,250 to Rs2,500 per month. Those earning between Rs1.2 million and Rs2.2 million annually would see their tax rate increase from Rs11,668 to Rs15,000 per month. For the income bracket of Rs2.2 million to Rs3.2 million annually, the rate would go up from Rs28,750 to Rs35,834 per month, and for those earning between Rs3.2 million and Rs4.1 million, the rate would increase from Rs47,000 to Rs58,000 per month.
FBR chairman disclosed that the International Monetary Fund (IMF) had initially demanded unified tax slabs for both salaried and non-salaried classes with higher rates of up to 45%. However, after intense negotiations lasting three days, the FBR successfully convinced the IMF to reduce the proposed tax rates for the salaried class.
Senator Anusha Rehman from the PML-N also voiced opposition to the increased tax rates for the salaried class, echoing concerns about fairness and economic impact.
The senators further rejected FBR’s proposal to implement a fixed capital gains tax rate of 15% for filers and 45% for non-filers on real estate and securities, regardless of the holding period. They also opposed sending parliamentarians’ records to the National Database and Registration Authority (Nadra) for tax collection purposes.
Additionally, Senator Shibli Faraz from the PTI cautioned against coercive measures to broaden the tax base, suggesting that such approaches might not yield the desired outcomes. The senators deliberated on increasing the tax rate for non-filers from 15% to 75% on the use of mobile phones for individuals listed in the income tax general order for non-filing of returns, even after receiving notices.
The firm stance of the senators against increasing tax rates for the salaried class highlights a broader demand for a fair and equitable tax system. The discussions underscore the critical need for balanced fiscal policies that ensure all sectors contribute their fair share to national revenue, thereby promoting economic stability and growth.