Salaried class to pay tax on expenditures on medical treatment, allowances, savings in provident & pension funds

ISLAMABAD, (June14, 20210): The finance bill proposed income tax on salaried class by slapping  tax on expenditures on medical treatment, various allowances and their savings in provident and pension funds.

The government has omitted at least six clauses from the second schedule of the Income Tax Ordinance through the Finance Bill 2021 that it laid before parliament on Friday. This will generate Rs10b taxes.

The Finance Minister Shaukat Tarin has asked the Federal Board of Revenue to reconsider the budget proposals affecting the salaried class, said an English daily.

Sources said that the FBR did not take the finance minister into full confidence before proposing these legal changes.

Medical reimbursement

The Finance Bill 2021 showed that omitted Clause 139 of the Ordinance has been omitted, that deals with giving exemptions on employees’ medical reimbursement. This has been done to generate Rs1.82 billion revenue.

Clause 139 that has been omitted

“The benefit represented by free provision to the employee of medical treatment or hospitalization or both by an employer or the reimbursement received by the employee of the medical charges or hospital charges or both paid by him, where such provision or reimbursement is in accordance with the terms of employment: any medical allowance received by an employee not exceeding 10% of the basic salary of the employee if free medical treatment or hospitalization or reimbursement of medical or hospitalization charges is not provided for in the terms of employment,” Clause 139 that has been proposed to be omitted reads.

Tax experts say, “Without increasing slab rates, the government has tacitly increased tax burden of 57%, in case an employee received major medical treatment like heart surgery.”

Provident fund

The government has slapped 10% tax on provident fund contributions exceeding Rs500,000. This might generate Rs7 billion additional revenue from the salaried persons.

Likewise, the receipts from the provident funds above Rs500,000 have also been taxed at the rate of 10% as separate block of income.

Pension funds

The finance bill also proposed an amendment in Clause 23C of the second schedule to tax the pension funds for the sake of Rs148 million. “The profit on debt (from pension funds) shall be chargeable to tax at the rate of 10% as separate block of income.”

Special allowances of the employees

The government has proposed to omit Clause 39 from the second schedule to take special allowances of the employees, except entertainment and conveyance allowances. This will generate another Rs1 billion from the salaried people,

Subsidised food, education

Clause (53A) has omitted to tax free or subsidised food provided by hotels and restaurants to its employees during duty hours; free or subsidised education provided by an educational institution to the children of its employees; free or subsidised medical treatment provided by a hospital or a clinic to its employees.

Newspaper employees

Any income of a newspaper employee representing Local Travelling Allowance paid in accordance with the decision of the Third Wage Board for Newspaper Employees constituted under the Newspaper Employees (Conditions of Service) Act, 1973 will also be taxed.