Pakistan’s salaried class continues to bear the brunt of the country’s tax burden, paying a staggering Rs111 billion in income tax during the first quarter of the current fiscal year—1,550% more than what the favored traders associated with the ruling party have contributed.
According to data from tax authorities, the Rs111 billion collected from salaried individuals between July and September represents an increase of nearly Rs40 billion, or 56%, compared to the same period last year. In the first quarter of the previous fiscal year, salaried workers paid Rs71 billion in taxes.
Under Prime Minister Shehbaz Sharif’s government, the tax burden on salaried individuals was significantly increased in June, with the focus on raising taxes rather than cutting expenditures or broadening the tax base to include sectors that remain largely untaxed.
Of the Rs111 billion, Rs28 billion came from federal and provincial government employees, who saw a 20% to 25% pay raise in the budget. Meanwhile, private sector employees, who often don’t receive annual raises, contributed the remaining Rs83 billion. The country’s average inflation rate for the last fiscal year was 23.4%.
In stark contrast, the Federal Board of Revenue (FBR) collected only Rs6.7 billion in taxes on goods supplied to traders. The total tax contribution of salaried individuals was 1,550% higher than the combined taxes collected from traders on these goods.
Despite increasing the withholding tax rate on trader supplies by 150%, bringing it to 2.5%, traders have been slow to enter the tax net. In fact, traders paid a mere Rs1 million in taxes, a figure that is just 0.001% of the target set by the International Monetary Fund (IMF).
For the first quarter of this fiscal year, the IMF had set a goal of Rs10 billion in taxes to be collected from retailers under the Tajir Dost scheme. However, the government’s results have fallen short.
Instead of offering relief to both salaried and non-salaried individuals, the government raised the effective income tax rates—nearly 39% for salaried persons, 44% for associations of persons, and 50% for non-salaried individuals. Additionally, a 10% surcharge was imposed on those earning over Rs10 million annually, a move that FBR Chairman Rashid Langrial himself described as unjust.
The FBR had initially told the federal cabinet that the additional tax contribution from salaried individuals for the fiscal year 2024-25 would be Rs85 billion. However, the results from the first quarter suggest that this estimate was conservative, with Rs40 billion in additional taxes already collected in just three months.
Breaking down the data further, non-corporate salaried individuals paid Rs50 billion in income taxes, an increase of Rs14.4 billion, or 41%. Corporate sector employees paid Rs32.4 billion, a jump of Rs11.6 billion, or 56%. Provincial government employees paid Rs16.6 billion, which is Rs8.5 billion, or 103%, more than last year, while federal government employees contributed Rs11.4 billion, up by Rs5.3 billion, or 85%.
The IMF’s recent staff report on Pakistan’s $7 billion loan package revealed that the government and the IMF are aligned on further increasing the tax burden on salaried individuals. The plan includes generating an additional Rs357 billion through adjustments to personal and corporate income taxes, including reducing the number of tax rate slabs for both salaried and non-salaried individuals.
For non-salaried individuals, the government will raise the tax rate for high earners (those with an annual income above Rs5.6 million) to 45%. For salaried individuals, the upper threshold for the highest tax bracket will be lowered to Rs4.1 million in annual income.
While salaried workers are increasingly weighed down by taxes as their real incomes shrink, traders, favored by the government, continue to evade taxes. Even the minimal Rs100 monthly tax under the Tajir Dost scheme remains largely unpaid, with traders contributing only Rs1.2 million by mid-October.
Though the IMF program aims to raise general tax revenues to 12.3% of GDP this fiscal year, it appears the bulk of this burden will fall squarely on the shoulders of salaried individuals.
