ISLAMABAD: The federal government is balking at the possibility of withdrawing income tax exemptions from VIPs holding public offices on significant portions of their salaries, undermining the principle of equity as applied on the rest of the salaried class — which is charged income tax on gross salaries.
At present, income tax on salaries of the president, provincial governors, services chiefs, corps commanders, Supreme Court and high court judges and federal ministries is charged by excluding expenses under various heads. Their salaries are taxable after excluding expenditures on conveyance, residence, entertainment, travel and allowances, shows the Income Tax Ordinance of 2001.
Similarly, the monetisation allowance that all federal secretaries, additional secretaries and joint secretaries receive is separately charged by taking it out from gross salaries aimed at avoiding higher rate of income tax, applied on those falling under higher income brackets. A federal secretary gets Rs97,000 monthly car allowance, which is charged at the rate of 5% by separately treating it.
Almost all federal bureaucrats serving in Grade 20 to 22 are not only availing hefty car allowances but also using official cars, which is contrary to the spirit of paying them in cash.
Unlike these VIPs, the salaries of all civilians and military personnel are taxable on gross value of their incomes, creating inequity in the tax system that is tilted in favour of the country’s elite, according to independent tax experts.
Sources said the Federal Board of Revenue was not ready to include a proposal of withdrawing these exemptions from the upcoming budget. Apart from these exemptions, the remaining salaries of all these VIPs are taxable, according to the FBR.
FBR Chairman Tariq Bajwa has recently hinted at not touching income tax exemptions available to the VIPs. He had told the Senate Standing Committee on Finance that out of Rs480 billion tax exemptions only half of these could be withdrawn as the rest are protected under the law and the constitution.
Who is getting what?
According to Clause 51 of second schedule of the Income Tax Ordinance of 2001 that deals in tax exemptions and concessions, the expenses incurred on paying house rent of the president, services chiefs, and provincial governors will be free of income tax.
Under Clause 52, the conveyance and entertainment allowances of the provincial governors, services chiefs, and corps commanders will be exempted from income tax. Similarly, Clause 53 ensures that federal ministers’ expenses on residence, conveyance and entertainments are not taxable.
Pervez Musharraf’s government had withdrawn income tax exemption available to federal and provincial ministers on sums spent on paying gas, water and electricity bills, available under Clause 54.
Under Clause 55, the house rent allowance of a judge of the Supreme Court and high court is not taxable. Similarly, under Clause 56, the expenses incurred by the superior court judges on cars, superior judicial allowance of an SC judge, transfer allowance of a higher court judge, and salaries paid to servants by them are excluded from tax calculations. Further, the expenses incurred on up to 1,000 telephone calls, 1,000 electricity units and 200 litres petrol per month by judges are excluded from income tax calculations.
In 2009 the president through an order exempted certain benefits and privileges of high court judges from income tax, which is not enshrined in the income tax ordinance of 2001, said tax expert Dr Ikramul Haq.