NEW INCOME TAX REGIME OF PRESENT GOVERNMENT

Benefits to University Teachers / Researchers and Other Sectors

PROF. DR. KHAWAJA AMJAD SAEED*
Email: kamjadsaeed@yahoo.com

Nov 27 - Dec 03, 2006

In higher education, teachers have never been so benefited from the decisions announced by a Government as they have enjoyed through decisions of the present Government. Other assesses e.g. non-salaried person, corporate sector, and banks have also greatly benefited through lower income-tax, flat rate introduction of income-tax and announcement of income-tax rates well in advance to enable business community to plan on stronger footing.

CONSTITUENTS

The paper has been divided into the following parts:

PART FOCUS

1 Inretrospect
2 Present Government's Revolutionary Steps
3 University Teachers / Researchers
4 Way Forward

These are now briefly reviewed below:

INRETROSPECT

By Allah's grace, positive actions of the present government have resulted in doubling the Federal Government revenue as is shown below:

TABLE-1 GROWTH IN FEDERAL GOVERNMENT REVENUE

YEAR

RS. (BILLION)

% GROWTH INDEX

1999 - 00

513

100

2000 - 01

553

108

2001 - 02

624

122

2002 - 03

721

141

2003 - 04

791

154

2004 - 05

900

175

2005 - 06

1,096

214

2006 - 07 (BE)

1,083 211

Sources: (1) Excerpted from Pakistan Economic Survey 2005-06, Statistical Appendix, Table 4.3, P.43. (2) Budget Document for 2006-07 released on June 05, 2006.

Our focus of this paper is to present revolutionary steps taken by the Government of Pakistan relating to some tax measures in the area of income tax with special reference to university teachers/researchers as income-tax payees (individuals - salaried and non-salaried classes, corporate sector, banks etc).

During the year's of Bhutto regime, a person wrote to him stating that his income-tax and wealth-tax aggregated for one year was 106% of his income. He raised a fundamental question about the exorbitant-tax rates and sought advice as how he could meet his cash flow to keep his soul and body together. The case was referred to CBR. They got a Finance Act passed with a rider clause restricting income-tax and wealth-tax to a maximum of 100%. Indeed, this was celebrated as a great concession. One wonders whether anybody read canons of taxation of Adam Smith to set the house in order.

The writer struggled hard to toss across the message of maximum 10% income-tax with a strong plea to let the Lifer's Curve to work. Presentations were made before Dr. Mahboobul Haq. He eventually succeeded as Federal Finance Minister to apply 10% income-tax for income not exceeding Rs. 100,000. He served for a shorter period and vested interested had greater informal control over the legal set up. He was transferred as Minister of Commerce.

The situation was also not better across the border in India during Indra Ghandi's regime. The effective rate at one time was as high as 97%. No wonder tax evasion has also been high. During Rajiv Ghandi's tenure after the assassination of Mrs. Indra Gandhi onwards, the then Union Finance Minister Mr. V. P. Singh, through interaction with stakeholders, announced eight years income-tax rates with strong enforcement of income tax law. Now the tax rates are fair and appropriate compared to very high income-tax rates of the past.

PRESENT GOVERNMENT'S REVOLUTIONARY STEPS

There are three ways of making improvements. These include:

1. Incremental.
2. Continuous.
3. Breakthrough.

The pace of incremental approach is slow and sluggish. Several years are needed to see productive results. The continuous approach follows Japan's management model i.e. KAISAN - keep improving every day. The best approach is breakthrough.

It is a fortunate situation that the present Government is a strong believer of this approach. Some of the significant steps taken in this respect are now reviewed below. Besides introducing Income Tax Ordinance 2001 after a participatory approach with stakeholders this law was enforced in a simplified language to the benefit of all stakeholders. Steps taken by the Government have seen growth in revenue, steady increase in number of income-tax payers and has been instrumental in inspiring confidence in the Civil Society.

The present Government has initiated tax reforms. Steps taken are remarkable and deserve full appreciation. Some of these are listed below:

1. The philosophy of taxation has changed. Instead of income-tax authorities, now the tax payers themselves assess their income, calculate the income-tax and deposit their Income Tax Returns. The system followed is known as Universal Self-Assessment. Earlier in 1960's Pakistan was the first country in South Asia to introduce Self-Assessment. However, due to "Ifs and Butts", this did not fully succeed. The present Government, instead of pursuing slow and sluggish approach, followed a breakthrough approach. This has been the crying need but the challenge was met by the Present Government which deserves full salute.

2. Pakistan is the first country to implement the spirit of a slogan: Simplify, Simplify, Simplify. There can be no greater pleasure to enjoy than the revolutionary step by the Government of Pakistan to permit treatment of the receipt of income tax return as an assessment order. We just wonder if there is any country in the world with so much trust reposed in tax payers. Hats off to the bold and beautiful decision taken by the present government.

3. To enable business community, corporate sector and banks, income-tax rates for some future years have also been announced. These are tabulated below:

TABLE - 2: CORPORATE RATES OF INCOME TAX

YEAR

PUBLIC COMPANY %

PRIVATE COMPANY 
%

BANK 
%

2004

35

41

44

2005

35

39

41

2006

35

37

38

2007

35

35

35

Now the Corporate sector can confidently plan for establishing their new concerns and even expand their existing business activities.

4. The salaried and non-salaried tax payers have been pleading for lower income-tax rates. The Finance Act, 2006 now has introduced flat rates starting from 0.25% with a maximum of 20%. Indeed, this is a remarkable effort undertaken by the Government. Now income-tax evasion must significantly decline as the above rates are fair and appropriate.

UNIVERSITY TEACHERS/RESEARCHERS

1. No Government has ever taken such revolutionary steps as the present Government relating to miraculously low income-tax rates. The effective highest income tax is 5%. If a University teacher / researcher is in the highest bracket of 20% income tax, a rebate of 75% is available from the income-tax The present Government deserves congratulations and CBR deserves full appreciation. These announcements are highly laudable and exemplary. Indeed, the take home amounts of University teachers / researchers have considerably gone up. Celebrating the Teachers Salam Day, the honourable Prime Minister of Pakistan also announced one grade upgradation from 17 - 20, to 18 - 21 respectively for public sector Universities. This is a step in right direction and no words can express appreciation in this respect.

2. Respect to Senior citizens has been given by allowing them 75% rebate from income-tax subject to a limit laid down as total income. This restriction, it is suggested, be withdrawn to enable senior citizens to continue to contribute beyond the superannuation age. This goodwill gesture will not significantly affect the revenue but will motivate the senior citizens to keep contributing in a productive manner to accelerate socio-economic development of Pakistan.

WAY FORWARD

CBR is doing an excellent work. Their leadership is an enlightened one and is committed to serve the country. Now that the Government is following Lifer's Curve, the challenge is for potential income-tax assesses to enlarge the income tax payers number. In a total population of 160 million in Pakistan, the number of direct income-tax payers is around 1.4 million. CBR intends to expand it to 3.0 million, although initial modest potential estimates are also too small. It is the moral duty of all of us to rise to the occasion. Starting with filing of income tax return above the prescribed threshold amount of income tax limit, we must enrich the country, beef up the Coufers of the State and put Pakistan on the path of enjoying economic sovereignty. This will enable Pakistan to significantly reduce foreign and domestic borrowing and add strength to Financial Defense of Pakistan.

We all can do it. Let us get up and do it. Pakistan awaits this positive beginning.

*Principal, Hailey College of Banking & Finance, University of the Punjab, Lahore Pakistan

Member Governing Council, International Federation of Accountants (IFAC) (1997-2000) President, South ASIAN Federation of Accountants (SAFA) (1997) President, Institute of Cost and Management Accountants of Pakistan (1997-2000) PRESIDENT, Association of Management Development institutions of South Asia (AMDISA) (1993-96) Pro Vice-Chancellor University of the Punjab, Lahore (1994-1996) Founder Director, Institute of Business Administration (IBA), University of the Punjab, Lahore (1973-1996)