Karachi Tax Bar Proposes Income Tax Exemption for Lower Salaried Individuals

The Karachi Tax Bar Association (KTBA) has suggested eliminating income tax for salaried individuals earning less than Rs 1 million annually to alleviate inflationary pressures.

In its budget proposals for fiscal year 2025-26 presented to the FBR Chairman, the KTBA highlighted crucial recommendations encompassing income tax, sales tax, and enhancements to digital infrastructure.

These proposals gain importance given increasing worries regarding the efficacy of recent reforms to the appellate structure, which were put into effect in May 2024.

Salaried Class: Advocates for Tax Slab Revision and Higher Exemption Limits

The KTBA stated in their submission that the recent changes to appellate procedures have unfortunately caused more misunderstanding than clarity. Superior courts have expressed legitimate concerns about practical issues with procedures, which are causing delays rather than the anticipated efficiencies.

The KTBA’s primary proposal involves raising the basic income tax threshold from Rs 600,000 to Rs 1,000,000 to account for inflation, which has had a disproportionate impact on lower-income earners.

The KTBA has also pushed for lowering the 45% tax rate on individual income over Rs 5,600,000, calling it excessively regressive.

Regarding businesses, the KTBA has suggested lowering the minimum turnover tax from 1.25% to 0.75%, arguing that this would greatly assist SMEs, startups, and loss-making businesses struggling in challenging economic circumstances.

Other significant suggestions include gradually lowering corporate tax rates to 25% through annual 1% decreases, creating a 15% deductible allowance against salary income, and reinstating different tax credits, such as Section 65B credits for industrial investments.

The KTBA has additionally requested that the Tribunal’s authority to grant stays be extended to 180 days and that supplies to approved Non-Profit Organizations be subject to zero-rated tax.

They additionally proposed a number of technical changes to the FBR’s Inland Revenue Information System (IRIS), including the use of system-generated barcodes for sales tax correspondence and a thorough resolution of ongoing system flaws.

The KTBA suggested raising appeal thresholds to Rs 50 million and eliminating payment requirements for obtaining stays in order to address widespread issues with tax appeals.