While Finance Minister, Shaukat Tarin, has been reiterating over and over that there will be no new taxes on the salaried class, despite pressures by the International Monetary Fund (IMF), it appears that there will be increased pressure on the salaried class through taxes on medical expenditures.
The government has proposed Rs. 10 billion taxes on the salaried class by slapping income tax on their expenditures on medical treatment, various allowances, and their savings in provident and pension funds, reported a local media outlet.
To achieve this, the government has omitted at least six clauses from the second schedule of the Income Tax Ordinance through the Finance Bill 2021 to give effect to Rs. 10 billion taxes, the news report said.
The Finance Minister had vowed that he would protect the salaried people from the tax burden. He said while speaking at the launching ceremony of the Economic Survey that the IMF had demanded to slap Rs. 150 billion taxes on the salaried class. Now it seems that the Federal Board of Revenue’s (FBR) top hierarchy did not take the Finance Minister into confidence before proposing these legal changes.
The taxes initially proposed on cellular networks and internet data, which amounted to nearly Rs. 100 billion, have already been withdrawn by the government.
In this latest development, the Finance Bill, 2021, shows that Clause 139 of the Ordinance has been omitted. This clause allowed exemptions on the medical reimbursements of employees, and its omission will result in additional revenue of approximately Rs. 1.82 billion.
This will also help in offsetting the Rs. 2 billion revenue loss expected from the proposed reduction in the capital gains tax (CGT) on the trade of securities at the stock market. The government has reduced the CGT rate from 15 percent to 12.5 percent.
“The only benefit of medical reimbursement or free medical facility left with salaried class is intended to be withdrawn by the Federal Government,” Dr. Ikramul Haq, a renowned tax expert, told media.
He said that the government has tacitly increased the tax burden by 57 percent without increasing slab rates. This will be applicable in case an employee received major medical treatment like heart surgery.
Another income tax exemption that has been withdrawn is the one available to Pakistani seafarers, who worked on Pakistan flag vessels for 183 days or more within a tax year. This removal of exemption will add Rs. 67 million to revenue.
Furthermore, 10 percent tax has also been applied on provident fund contributions and profit on debt (from pension funds), exceeding Rs. 500,000. This is also a burden of Rs. 7 billion on the salaried persons.
Another Rs. 1 billion in revenues will be obtained from special allowances of the salaried employees, which were exempt from taxes so far. One example of this is any income of a newspaper employee representing Local Travelling Allowance, which will also be taxed now.
Likewise, subsidized food provided by hotels and restaurants to its employees during duty hours, along with subsidized education provided by an educational institution to the children of its employees, and subsidized medical treatment provided by a hospital or a clinic to its employees will also be taxed now as the clauses exempting these heads of expenditure are now removed. This measure will altogether generate additional Rs. 135 million in revenues annually.