Bureaucrats on boards of firms benefit from tax system loopholes

ISLAMABAD: The country’s top civilian bureaucracy has been benefiting from distortions in the taxation system, enjoying substantial remunerations upon appointments to the boards of directors of various international bilateral joint companies and public and private sector entities.

However, the FBR was deducting only a fixed flat rate of 20 percent instead of applying taxes based on higher salary brackets, granting these officials an extraordinary benefit that has gone unnoticed.

In some instances, top civilian bureaucrats have received remuneration in US dollars based on per-meeting rates, but only a 20 percent flat tax was deducted, these extra earnings being treated as salaried income under the Income Tax Law.

Top official sources confirmed to The News on Friday that the FBR had addressed the remuneration drawn by top bureaucrats serving on the boards of directors of different joint investment companies, public sector entities, and some semi-autonomous bodies.

A significant amount was drawn based on each meeting. In one case, government members on the boards of directors received between $10,000 and $5,000 per meeting, typically held outside Pakistan. This rate applied to each meeting, and dozens of such meetings occurred annually.

Under the current Income Tax law, Section 49(3) states that every person responsible for making payment for directorship fees or fees for attending a board meeting, or such fees by any name, shall deduct tax at the rate of twenty percent of the gross amount payable at the time of payment.

The tax deductible under Sub-section (3) shall be adjustable.

According to the recently approved amendment to the Finance Bill 2023, individuals whose income falls under the category of ‘salary’ and exceeds 75 percent of their taxable income will be subject to the following tax rates:

Taxable income up to Rs600,000: The tax rate will be zero percent.

Taxable income exceeding Rs600,000 but not exceeding Rs1,200,000: The tax rate shall be 2.5 percent of the amount exceeding Rs600,000.

Taxable income exceeding Rs1,200,000 but not exceeding Rs2,400,000: A fixed amount of Rs15,000, along with 12.5 percent of the amount exceeding Rs1,200,000, shall be applicable as tax.

Taxable income exceeding Rs2,400,000 but not exceeding Rs3,600,000: A fixed amount of Rs165,000, along with 22.5 percent of the amount exceeding Rs2,400,000, shall be applicable as tax.

Taxable income exceeding Rs3,600,000 but not exceeding Rs6,000,000: A fixed tax amount of Rs435,000, along with 27.5 percent of the amount exceeding Rs3,600,000, shall be applicable.

Taxable income exceeding Rs6,000,000: A fixed tax amount of Rs1,095,000, along with 35 percent of the amount exceeding Rs6,000,000, shall be applicable.