Under the Finance Supplementary (Amendment) Bill, 2018, in the case of salaried individuals, seven tax slabs have been introduced. A nominal tax rate of Rs 1000 and Rs 2,000 has been imposed upon taxable income(s) ranging from Rs 400,001 to Rs 800,000 and Rs 800,001 to Rs 1,200,000, respectively. In addition to the above, four tax slabs ranging from 5% to a maximum of 25% have been introduced for salaried individuals. It would be pertinent to mention that there shall be no enhanced tax burden upon salaried individuals deriving monthly income up to Rs 200,000 whereas in the case of the remaining salaried individuals the tax burden shall be lower than the tax in vogue till June 30, 2018.
Prior to the Finance Act, 2018 the minimum threshold of taxable income for individuals was Rs 400,000 whereas the maximum tax rate was 30% and 35% for salaried and non-salaried individuals respectively. Through the Finance Act 2018, rates for both salaried and non-salaried individuals were unified and the minimum threshold of taxable income was increased to Rs 1,200,000. However, a nominal tax rate of Rs 1000 was imposed on income between Rs 400,000 to Rs 800,000 and Rs 2,000 on income between Rs 800,000 to Rs 1,200,000. Furthermore, the previous tax slabs for salaried as well as non-salaried individuals were reduced to three slabs with tax rate of 5% for income between Rs 1,200,000 to Rs 2,400,000, 10% for income between Rs 2,400,000 to Rs 4,800,000 and 15% for income exceeding Rs 4,800,000.
The FBR said that the tax slabs for individuals introduced through the Finance Act, 2018 resulted in a much lower incidence of tax upon affluent individuals earning high incomes and compromised on the core principle of progressivity and equity in taxation. In order to rationalize the tax rate on individuals and ensure a progressively higher incidence of tax on individuals based on their "ability to pay" separate tax rates have been introduced for both salaried as well as non-salaried individuals.
The maximum tax rate for non-salaried /business individuals was reduced from 35% to 15% through the Finance Act, 2018. The prevailing tax rate for companies is 29% , therefore the large gap in tax rates between corporate and business individuals is likely to discourage and disincentive corporatization of businesses.
Therefore, in the case of non-salaried individuals eight tax slabs have been introduced. As in the case of salaried individuals, a nominal tax rate of Rs 1000 and Rs.2,000 has been imposed upon taxable income(s) ranging from Rs 400,001 to Rs 800,000 and Rs 800,001 to Rs 1,200,000 respectively. In addition to the above, five tax slabs ranging from 5% to a maximum of 29% have been introduced for non-salaried individuals. It would be pertinent to mention that there shall be no enhanced tax burden upon non-salaried individuals deriving monthly income up to Rs 200,000 whereas in the case of remaining non-salaried individuals the tax burden shall be lower than the tax in vogue till June 30, 2018.