Employees of private sector discriminated against

Jun 22 - 28, 1996

It may be a unique event in the history of Pakistan that employers are pleading the case of employees. This refer to the hectic efforts of the Overseas Investors Chamber of Commerce and Industry (OICCI). They have gone to the extent of seeking a meeting with the prime minister to appraise her of the implications of taxing the perks and privileges of corporate employees. The PM secretariat is yet to consider the request. An OICCI delegation had already met the PM's Advisor on Finance and Economic Affairs V. A. Jaffarey, who had assured the delegation that their point of view would be given consideration but remained non-committal.

The budget proposals to bring into the tax net the salary perquisites of the corporate employees has created a turmoil in the entire corporate sector more so because the government employees have not been treated similarly. As an executive of a local company listed at the stock exchange said, the government, by its action, has discriminated between employees of private and public sectors.

According to an estimate, around 50,000 employees engaged by the multinational companies operating in Pakistan would be affected. According to Tariq Ikram, president OICCI the decision would increase the tax liability of the employees of the MNCs to the extent that it may cause a brain-drain in the corporate sector.

In a similar statement, the Private Banks Association has urged the government to reverse the decision to tax the perks and privileges of bank employees. The decision would enhance tax liability of around 2,000 employees of the private banks besides bringing into the tax net another few hundred. The proposed move to withdraw income tax exemptions to corporate employees is likely to enhance their tax liability from 70 to 170 percent.

The following table prepared by AKD Securities discloses the extent of reduction in disposable income of non-government salaried class.

According to another employee of a private sector corporation, is it not ironical that the government, instead of increasing the limit of taxable income to take care of double digit inflation in the country, has not only imposed 18% GST on most of the items of everyday use but has also withdrawn the exemptions available."

Another employee angry at agriculture income not being taxed said there is inequitable distribution of tax on people living in urban areas. Out of the total proposed tax of over Rs. 41 billion most of the collection would be from the salaried class. Even if the income of an individual is Rs. 3,500 he would have to pay tax. He further said that in Sindh, a province where he lives, taxes of Rs. 900 million have been proposed out of which Rs.865 million would be collected from non-agriculture sector and around 35 million from the agriculture sector.

Another employee said that while the PM, president, MNAs and MPAs are entitled for enhanced income and duty-free cars, the exemptions inrespect of perks of corporate employees have been withdrawn. Aren't the VVIPs the citizens of Pakistan? He also emphasized the point that VVIPs get duty-free cars which are ultimately sold, there should be a restriction on sales of duty-free cars for at least 5 years and if these cars are sold earlier the duty should be charged at double the rate.

But the officials of income tax department had a different view. According to them MNCs pay heavy perks to their employees just to being down their profit. Payment of huge salaries and perks reduces their taxable income which ultimately reduces their tax liability. Contrary to this the MNCs have a point that they want their employees to make a career and higher salaries are reward for hard work and dedication. Even when their personnel cost is high affecting the net income it is investment in human resource development.

A lot many people have objected to the rationale of the federal government that imposition of agri-income tax is a matter of provincial governments. While the federal government fixes the support price of agricultural commodities why can it not impose tax by issuing an ordinance — in a country where so many ordinances are issued by the federal and provincial governments why not another one to tax the income of landlords or the owners of orchards.