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Federal budget 1999-2000 income tax rates

  1. Closure of coal mines
  2. Import of cotton affecting local prices
  3. Decline in revenue collection
  4. Salt problems in irrigated soils
  5. Changes in corporate and income tax rates

Prof. Dr. Khawaja Amjad Saeed, FCA, FCMA
July 05 - 11,1999

IN RETROSPECT

The story of income tax rates in Pakistan is an interesting one. During Late Z. A. Bhutto's time in early 1970s, legislation was passed restricting income tax and wealth tax to total income of an individual. How funny does it look? During the same period, effective rate of income-tax in India during Late Indra Gandhi was 97%. One can imagine incentive for tax evasion and lower levels of productivity.

This piece reviews changes introduced in the Federal Budget 1999-2000 in respect of individual and corporate rates.

Income tax rates

CORPORATE TAX

The Income Tax rates applicable for the assessment year 1999-2000 have been revised. The position is tabulated as under:

Table: 1 - Corporate Income Tax Rates

Particulars        Revised Rates % Previous Rates %

(1999-2000)              (1998-l999)        Increase

1. Banking Company

58

50

12

2. Public Company

33

30

11

(other than banking)

3. Other Companies

43

35

23

Mian Nawaz Sharif Government, in round one, started well. For five years declining rates of income tax were announced. This was well appreciated by the assessees, in particular by business community. This enabled strengthening of corporate budgeting with a sense of clarity. Ms. Benazir Bhutto, in her round two, did not follow the above system and, perhaps due to revenue constraints, changed the above five years slab of income tax.

In round two of Mr. Nawaz Sharif, a radical reduction in the income tax slab was announced. The minimum rate was 5% with a maximum of 20%. These reductions were presumed to follow the principle underlying Lafers Curve. Prof. Lafer, a famous business economist, had stated that if rates of income tax are reduced, the number of assessees may go up as illustrated below:

Unfortunately Lafers Curve did not work in Pakistan. This needed marketing effort backed up by logistical support. Governments in general announce legal changes rather than giving a serious concern to marketing efforts. Unfortunately, in our country, trade associations are also hostage of their members and are unable to significantly contribute to national exchequer. Consequently, in the second year of Nawaz Sharif round two, surcharge of 10% was imposed. Therefore, effective rate of income tax moved up. In the third year of the above Government, upward rates of taxes for Corporate Sector have been announced. These have been shown in Table 1.

Individuals

A reference to Lafers Curve has already been given above. This did not work in Pakistan. As against minimum rate of 5% and maximum of 20%, the following rates in respect of individuals have been announced in the Finance Bill, 1999:

Table: 2 - Income Tax Rates for Individuals

Income Slab                        Income Tax

1. Not exceeding Rs. 100,000

5% of total income.

2. Rs. 100,001 - Rs. 200,000

Rs. 5,000 plus 10% of amount exceeding Rs. 100,000.

3. Rs. 200,001 - Rs. 300,000

Rs. 15,000 plus I5% of amount exceeding Rs. 200,000.

4. Rs. 300,001 - Rs. 500,000

Rs. 30,000 plus 20% of amount exceeding Rs. 300,000.

5. Rs. 500,001 - Rs. 700,000

Rs. 70,000 plus 25% of amount exceeding Rs. 500,000.

6. Rs. 700,001 - Rs. 1,000,000

Rs. 120,000 plus 30% of amount exceeding Rs. 700,000.

7. Exceeding Rs. 1,000,000

Rs. 210,000 plus 35% of amount exceeding Rs. 1,000,000.

From assessement year 2000-2001, salary, allowances, perquisites and other benefits will be taxed at the above rates as single block of income.

With-holding tax at the above new rates on salaries will apply with effect from July 01, 1999.

However, separate rates have been specified for persons who qualify for self-assessment under a scheme to be announced by the Central Board of Revenue for the assessment year 1999-2000. These are tabulated below:

Table: 3 - Income Tax Rates under Universal Self Assessment Scheme

Income Slab                                Income Tax

1. Not exceeding Rs. 50,000

Rs. 2,500

2. Rs. 50,001 - Rs. 150,000

Rs. 2,500 plus 10% of amount exceeding Rs. 50,000.

3. Rs. 150,001 - Rs. 300,000

Rs. 12,500 plus 20% of amount exceeding Rs. 150,000.

4. Exceeding Rs. 300,000

Rs. 42,500 plus 30% of amount exceeding Rs. 300,000.

A proviso has been inserted whereby the surcharge at 10% of tax is not payable by salaried person for the assessment year 1999-2000 and thereafter. Other assessees are liable to pay surcharge at the above rate.

With-holding tax on casual income

The rate of with-holding tax on income from prize bond, raffle, lottery or cross word puzzle has been increased from 7.5% to 10%.