Budget proposals 2014-2015: income tax be charged over Rs 1 million from senior citizens

KARACHI: The Institute of Cost and Management Accountants of Pakistan (ICMAP) has proposed that income tax should be charged over Rs one million from senior citizens to increase tax recovery.
ICMAP said that it would be more easy for the taxpayer to pay some amount of tax at prescribe rate instead of concealing the money.
At present, the taxable income of a senior citizen (aged 60 years or more) has been given rebate or exemption of 50 percent (w.e.f. 1st July 2010) provided the income does not exceed Rs one million.
As per above provision, if the income of senior citizen exceeds Rs one million then it is subject to tax. Due to this the taxpayer conceals the income exceeding Rs one million to evade income tax.
ICMA Pakistan has recommended that tax rebate to teachers and researchers should be brought to 75 percent in consonance with government policy to promote education and research in the country.
In current situation, tax exemption or rebate of 40 percent on taxable income from salary has been allowed to a full time teacher or a researcher, employed in a non profit education or research institution, board of education or a university recognized by the HEC, including government training and research institution.
Earlier, the tax rebate was 50 percent on taxable income of teachers and researchers but through Finance Act 2013, this has been reduced to 40 percent. This has been termed as an anti-education measure by the education sector as well as the research-based organizations.
The ICMAP has suggested that appropriate amendment should be made to exempt public sector universities from tax liabilities, which would result in availability of additional funds to be used for educational purposes.
At present, through the Finance Act, 2013, a new Clause 58(A) was inserted in Part 1 of Second Schedule of ITO, 2001, whereby tax exemption has been allowed on income of a university or other educational institution being run by a non-profit organization, existing solely for educational purposes and not for purposes of profit.
It said that the provision, however, does not provide any tax relief to those public sector universities which are being operated by the federal and provincial governments and duly recognized by the Higher Education Commission of Pakistan.
It is highlighted that the public sector universities are not engaged in any profit making activities and are also not involved in distribution of dividend or profit in any manner.
ICMA Pakistan has demanded the government to reduce the corporate tax rate to 30 percent in upcoming budget 2014-2015 and further reduce it gradually to 25 percent during the next five years.
It said that the proposal is in long pending and the tax collectors and taxpayers have common opinion that the tax rate should be brought down to the regional average level so that the Pakistani companies can prosper and bring more investments into the industries.
It is believed that it would lead to corporatization and improve tax compliance and reduce tax evasion in the country.
The ICMAP said, the finance minister assured that this would be eventually brought down to 25 percent by reducing it by 1 percent every year.
In existing situation, as per Clause (i) given in Division II, Part 1 of First Schedule of IT Ordinance, the rate of tax imposed on taxable income of a company for tax year 2007 and onwards was set at 35 percent.
However, through Finance Act, 2013, a provision has been added in this clause whereby the rate of tax has been reduced to 34 percent for the tax year 2014.
The ICMA Pakistan said that it is a fact that the average tax rate on corporate incomes in the Asian region is less than 23 percent whereas in Europe it is less than 21 percent and the global average of corporate tax rate is 24 percent.
However, in case of Pakistan the corporate sector other than the banking companies has to face multiplicity of taxes due to which in addition to 34 percent normal tax is imposed. It has to pay additional two percent on account of workers welfare fund (WWF) and five percent for workers participation fund (WPF) which increases the tax rate on corporate income to 42 percent, which is quite high as compared to countries in the region. Even China has brought down the corporate tax rate to attract more investment.

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