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PAKISTAN BUDGET 2015-16; MIDDLE CLASS WILL BE THE MAJOR TAX PAYER!


June 05, 2015; Mr. Ishaq Dar presented the budget for the year 2015-16 after which many businessmen and organizations got benefit whereas and others were affected negatively. Tax Rates for Salaried persons reduced from 5% to 2% for ONLY POOR CLASS, whereas Middle Class was chosen to pay major percentage of tax. Instead of providing with more details, I would like to be more specific how “MIDDLE CLASS WILL BE THE MAJOR TAX PAYER FOR THE YEAR 2015-16.” According to John Parker’s statement “For the first time in History, more than half of the world is Middle Class”, which is considered to be the most important class in developing nations. This statement was also included in the article “Burgeoning Bourgeoisie” published by “The Economist”. Pakistan is one of those developing nations which has population of 1.8 Billion among which over half of the population belongs to middle class according to the facts and figures presented by Institute of Business Administration Karachi Pakistan in 2011. Now coming back to the budget 2015-16 for Pakistan presented by Mr. Ishaq Dar on 5th of June 2015, we have following Income Tax Slabs for Salaried Persons:

TAX SLABS FOR SALARIED PERSONS FOR THE YEAR 2015-16
Annual Income (Rs.) Tax Payable (Rs.)
Upto 400,000 NIL
400,000 500,000 2% of Amount exceeding 400,000
500,000 750,000 2,000 + 5% of Amount exceeding Rs. 500,000
750,000 1,400,000 14,500 + 10% of Amount exceeding Rs. 750,000
1,400,000 1,500,000 79,500 + 12.5% of Amount exceeding Rs. 1,400,000
1,500,000 1,800,000 92,000 + 15% of Amount exceedning Rs. 1,500,000
1,800,000 2,500,000 137,000 + 17.5% of Amount exceeding Rs. 1,800,000
2,500,000 3,000,000 259,500 + 20% of Amount exceeding Rs. 2,500,000
3,000,000 3,500,000 359,500 + 22.5% of Amount exceeding Rs. 3,000,000
3,500,000 4,000,000 472,000 + 25% of Amount exceeding Rs. 3,500,000
4,000,000 7,000,000 597,000 + 27.5% of Amount exceeding Rs. 4,000,000
7,000,000   More 1,422,000 + 30% of Amount exceeding Rs. 7,000,000
*    Senior Citizens (Aged 60+) have 50% Tax Rebate

Slab 3 & 4: Middle Class By distributing the tax slabs into the peoples’ classes, we realize that First slot comes under Lower-Lower Class (Poor Class) wehereas next slot comes under Upper-Lower Class (thanks to the government for decreasing the tax rate for Upper-Lower class). The most interesting part here is about Middle Class which belongs to the next two slabs of Income Tax, where, we can see that Lower-Middle Class of people are paying the tax of Upper-Lower class as well as 5% of the next slab. Adding 2% and 5%, we see that 7% tax is paid by Lower-Middle Class. Moving on, we have Upper-Middle Class paying 7% plus 10% a total of 17% Tax. The point which is important here is when we move from 2nd slab to 3rd slab, an increase of 3% in rate is admissible. Then moving from 3rd slab to 4rth slab, an increase of 5% is admissible. Compare with other slabs; see there is not more than 2.5% tax increase in any slabs as it is in these two slabs. Surprisingly, as a result, Middle Class is sacrificing more of its income than any other class of people living in Pakistan. Conclusion: So now we understand how Middle Class helps economies to grow and how much they sacrifice for the country. Any economy’s backbone is Middle Class which means, the development of a nation depends upon Middle Class. However, surprisingly, why Elite Class is not contributing in for development? The answer will require a detailed analysis of Elite Class and there is a strong need to enforce Elite Class to pay more taxes. If both Middle and Elite Class combine to pay tax, I am sure Pakistan will soon release her debt and we will rise as a developed nation in the near future. References:

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