Tax experts told Business Recorder that the budget explanatory circular was required to be issued four months ago by the FBR. However, budget's circular drafting and vetting took over four months. The budget was introduced on April 27, 2018 and the explanatory circular was required to be issued with a gap of a few weeks after the passing of the budget from the National Assembly.
The tax experts added that as the issuance of budgetary circular was already delayed by four months, the budget explanation circular could be released after proposed amendments of the new government through the Finance Amendment Bill.
The important amendments in the Income Tax Ordinance introduced through Finance Act 2018 were explained for the taxpayers in the circular.
The Federal Board of Revenue (FBR) has clarified that through the Finance Act, 2018, tax rates of both salaried as well as non-salaried individuals have been clubbed/revised and separate tax rates were provided for association of persons (AOPs).
Prior to the Finance Act, 2018, the minimum threshold for taxable income was Rs 400,000 for individuals and tax rates for non-salaried and salaried individuals were separately provided in paragraph(s) (1) and (IA) respectively in Division I, Part-l of the First Schedule. Through the Finance Act, 2018, tax rates of both salaried as well as non-salaried individuals have been clubbed and revised by providing rates for individuals (salaried as well as non-salaried) in paragraph (1) of Division I as under:-
Where the taxable income does not exceed Rs 400,000, rate of tax is 0%; where the taxable income exceeds Rs 400,000 but does not exceed Rs 800,000, rate of tax is Rs 1000; where the taxable income exceeds Rs 800,000 but does not exceed Rs1,200,000, rate of tax is Rs 2,000; where the taxable income exceeds Rs 1,200,000 but does not exceed Rs 2,400,000, rate of tax is 5% of the amount exceeding Rs 1,200,000; where the taxable income exceeds Rs 2,400,000 but does not exceed Rs 4,800,000, rate of tax is Rs60,000 + 10% of the amount exceeding Rs 2,400,000; and where the taxable income exceeds Rs 4,800,000, rate of tax is Rs 300,000 + 15% of the amount exceeding Rs 4,800,000.
After this table a proviso has been added which states that where the taxable income exceeds Rs 800,000 but the tax payable is less than Rs 2,000, a minimum tax of Rs 2,000 would be payable. Hence, Rs 2,000 would be payable on income from Rs 800,000 to Rs 1,240,000. The proviso has been added, because the tax at the rate of 5% on income exceeding Rs 1,200,000 up to Rs 1,240,000 would have been less than Rs 2,000, the FBR added.
Reduction in rates of tax for Association of Persons: Prior to the Finance Act, 2018 the tax rates applicable to Association of Persons (AOP's) and non-salaried individuals were clubbed together and comprised seven progressive tax slabs as provided in paragraph (I), Division I, Part I of the First Schedule. Through the Finance Act, 2018, separate tax rates have been provided for AOPs in paragraph (2), Division I, Part I of the First Schedule which are as under:-
Where the taxable income does not exceed Rs 400,000, rate of tax is 0%; where the taxable income exceeds Rs 400,000 but does not exceed Rs 1,200,000, rate of tax is 5% of the amount exceeding Rs 400,000; where the taxable income exceeds Rs 1,200,000 but does not exceed Rs 2,400,000, rate of tax is Rs 40,000 + 10% of the amount exceeding Rs 1,200,000; where the taxable income exceeds Rs 2,400,000 but does not exceed Rs 3,600,000, rate of tax is Rs 160,000 + 15% of the amount exceeding Rs 2,400,000; where the taxable income exceeds Rs 3,600,000 but does not exceed Rs 4,800,000, rate of tax is Rs 340,000 + 20% of the amount exceeding Rs 3,600,000; where the taxable income exceeds Rs 4,800,000 but does not exceed Rs 6,000,000, rate of tax is Rs 580,000 + 25% of the amount exceeding Rs 4,800,000; and where the taxable income exceeds Rs 6,000,000, rate of tax is Rs 880,000 + 30% of the amount exceeding Rs 6,000,000.