Being Filer Salaried Persons Tax Benefits in Pakistan

Taxpayers do not know about the benefits of evolving into working taxpayers or filers, so they do not file income tax returns due to a lack of knowledge. However, they are now paying income tax deducted from their salaries. Taxes for leaders are deducted from the source by their employers. But they still look like a non-filer; if they do not file income tax returns or their name does not occur on the ATL list, it keeps them out of the file, and even with tax deducted from their employers, they end up either overpaying or high tax ultimately.

Paid individuals can enjoy many benefits simply by filing as they pay their taxes. It is required for all paid people to fill out their tax returns and file, whether they are public servants or private. The most critical loss associated with not filing tax returns is that you lose your refund claim, as taxes are deducted from the purchase.

Any salary received by an employee in a tax year, other than salary that is exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head “Salary,” the amount of any allowance provided by an employer to an employee including a cost of living, subsistence, rent, utilities, education, entertainment or travel allowance, but shall not include any allowance solely expended in the performance of the employee’s duties of employment; the amount of any expenditure incurred by an employee that is paid or reimbursed by the employer, other than expenditure incurred on behalf of the employer in the performance of the employee’s duties of employment;

The word salary has been defined in the Income Tax Ordinance, 2001, to include almost every benefit from the employer. (section 12)

Any arrears of salary paid by the employer to the employee and as a result employee is chargeable to higher rates of tax, and the employee can elect to have such arrears taxed at the rates that would have been applicable had the salary been paid to the employee in the tax year in which the services were rendered. For example, Govt of Pakistan inducted many employees into Govt organizations whom previous Govts terminated because these were political appointments.

As a result of re-induction, Govt are also paying them arrears for the previous years; some may get arrears of around 10 years. Since such arrears may render the income of these employees in a much higher tax slab, these employees may opt to have these arrears taxed in the previous years under section 12(7) and consequently may not even have to pay a penny.

For example, a person is paid in 2012 by Govt salary arrears of Rs.500,000, constituting an annual salary of Rs.50,000 for the last ten years. For the tax year 2012, total arrears would fall in a 3.5% slab rate; however, if taxed separately, no tax liability would arise as Rs.50,000 was exempt from tax in all the previous ten years.

The current income slabs and rate of tax for salaried persons:

Where the taxable income does not exceed: Rs. 600,000, 0%
Where the taxable income exceeds Rs. 600,000 but does not exceed Rs. 1,200,000: 5% of the amount exceeding Rs. 600,000
Where taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 1,800,000: Rs. 30,000 plus 10% of the amount exceeding Rs. 1,200,000
Where taxable income exceeds Rs. 1,800,000 but does not exceed Rs. 2,500,000: Rs. 90,000 plus 15% of the amount exceeding Rs. 1,800,000
Where taxable income exceeds Rs.2,500,000 but does not exceed Rs. 3,500,000: Rs. 195,000 plus 17.5% of the amount exceeding Rs. 2,500,000
Where taxable income exceeds Rs. 3,500,000 but does not exceed Rs. 5,000,000: Rs. 370,000 plus 20% of the amount exceeding Rs. 3,500,000
Where taxable income exceeds Rs. 5,000,000 but does not exceeds Rs. 8,000,000: Rs. 670,000 plus 22.5% of the amount exceeding Rs. 5,000,000
Where taxable income exceeds Rs. 8,000,000 but does not exceeds Rs. 12,000,000: Rs. 1,345,000 plus 25% of the amount exceeding Rs. 8,000,000
Where taxable income exceeds Rs. 12,000,000 but does not exceeds Rs. 30,000,000: Rs. 2,345,000 plus 27.5% of the amount exceeding Rs. 12,000,000
Where taxable income exceeds Rs. 30,000,000 but does not exceeds Rs. 50,000,000: Rs. 7,295,000 plus 30% of the amount exceeding Rs. 30,000,000
Where taxable income exceeds Rs. 50,000,000 but does not exceeds Rs. 75,000,000: Rs. 13,295,000 plus 32.5% of the amount exceeding Rs. 50,000,000
Where taxable income exceeds Rs. 75,000,000 Rs. 21,420,000 plus 35% of the amount exceeding Rs. 75,000,000]