Chidambaram the role model in Pakistan

By Vijay Kumar

The new financial year in Pakistan began on July 1st with big accolades to our Finance Minister Mr. Chidambaram. His Pakistani counterpart was obviously following Chidambaram very closely. Just look at this. From 1st July it is mandatory for banks in Pakistan to deduct a 0.1% tax on withdrawals exceeding Rs 25,000 through credit cards and ATMs.

A CBR (Central Board of Revenue) circular explains that, in order to discourage cash economy, a new section 231A has been introduced, requiring every banking company to deduct tax 0.1 percent withholding tax at the time of making payment for cash withdrawals exceeding Rs 25,000. Cash withdrawals made on credit cards or from ATMs shall also be covered by this provision. No tax shall be deductible on withdrawals of Rs 25,000 or lesser amounts. But there are a few things our expert Finance Minister can copy from Pakistan.

• subscribers of telephone, car owners, members of clubs and persons undertaking foreign travels have been absolved from the obligation of mandatory filing of returns.

• a taxpayer deriving only salary income is not obliged to furnish a return of income. Instead, he is required to file a prescribed certificate from the employer. Following the policy of simplification and facilitation for the taxpayers, Income Tax Rules have been reviewed and in this context, an Annual Statement of Deduction of Income Tax from Salary has been prescribed which shall be filed by the employer, containing complete details of pay, allowances and tax deducted etc. In case of taxpayers deriving income from salary only, the prescribed annual statement filed by the employer will be considered as sufficient discharge of liability to file return of income on the part of individual employees.

• where a taxpayer furnishes a complete return of income, it shall be taken for all purposes to be an assessment order issued by the commissioner on the date the return was furnished.

• For the purposes of simplification of law and to provide relief, tax rates for salaried taxpayers have been rationalized. The following tax rates shall be applicable from the tax year 2006.

1. Where taxable income does not exceed Rs 100,000, Nil.

2. Where taxable income exceeds Rs 100,000 but does not exceed Rs 200,000, - 3.5 percent of the amount exceeding Rs 100,000.

3. Where taxable income exceeds Rs 200,000 but does not exceed Rs 400,000, Rs 3,500 plus 12 percent of the amount exceeding Rs 200,000.

4. Where taxable income exceeds Rs 400,000 but does not exceed Rs 700,000, - Rs 27,500 plus 25 percent of the amount exceeding Rs 400,000.

5. Where taxable income exceeds Rs 700,000, Rs 102,500 plus 30 percent of the amount exceeding Rs 700,000.

Gen. Musharaf like our President and Prime Minister and unlike our Finance Minister was a salaried employee and perhaps has a soft corner for salaried employees.

Fringe Benefit – even employees exempted. Certain organisations provide benefits to its employees for which they do not have to bear any marginal costs. For example, free or concessional passage provided by transporters, including airlines to its employees (including the members of their household and dependents); free or subsidized food provided by hotels and restaurants to its employees during duty hours; free or subsidized education provided by an educational institution to the children of its employees; free or subsidized medical treatment provided by a hospital or a clinic to its employees. These benefits were taxable in the hands of the employees as perquisites. Now these perks are exempted.

I don’t know about Jinnah’s secularism certified by Advani, but I love the Pakistani tax laws- for one their Federal Excise Rules, 2005 is a far better and more simple code than ours incorporating excise and Service Tax. Click here to have a look at those rules