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Business Recorder
29-05-2025
- Business
- Business Recorder
‘Pakistan salaried class paid 5 times more taxes than exporters, retailers in outgoing FY25'
Pakistan salaried people's contribution to the tax net was projected to be five times higher than that of the country's exporters and retailers in the outgoing financial year 2024-25, a member of the Salaried Class Alliance of Pakistan (SCAP) said on Thursday. The Federal Board of Revenue (FBR) collected Rs430 billion in revenue in income tax from salaried people in the first 10-month of the outgoing fiscal year 2024-25, said Nasir Hussain Taibani, a member of the SCAP, in a press conference at the Karachi Press Club. Salaried class: Call for revision of tax slabs, rise in exemption limits The contribution was estimated to surpass Rs550 billion in the full current fiscal year, compared to Rs75 billion in FY19 and Rs368 billion collected in FY24, he added. 'Salaried people are subject to heavy taxes compared to only Rs100 billion collectively paid by exporters and retailers,' Taibani said. The group demanded reliefs in the upcoming budget for FY2025-26, claiming the collection of revenue in taxes had reached its optimal level. 'The time has come when the elevated tax rates would start impacting collection of revenue and economic growth, and expedite flight of capital and brain-drain from the country to abroad,' Komal Ali, another member of the SCAP. Citing Laffer Curve theory at the press conference, Komal Ali said the existing tax rates 'are too high' on the income of salaried people in Pakistan. If the government did not opt for tax cuts and tax credits, the collection of revenue and economic activities would start to decline, she envisaged. 'The higher tax rates will expedite brain-drain of highly skilled and well-educated people, and flight of capital, from Pakistan to abroad.' Meanwhile, Taibani further said the salaried class paid up to 35% in taxes. In addition to that, a section of the them also paid a 10% surcharge, he added. 'On the other hand, they are subject to indirect taxes on purchase of goods, and health and education fees. This means a big portion of their income is going into taxes, badly impacting their disposable income.' He recommended the government to reduce the number of income tax slabs back to 2022-23 level for them, cut higher rate of taxes, double the threshold of income tax exempted salary to Rs100,000 a month compared to Rs50,000 a month at present. Taibani also demanded the government restore tax incentives on investment in products like mutual funds and pension funds, and remove surcharge of 10% on the income tax. He maintained the government should increase the number of taxpayers in the country through bringing agriculture and retail sectors into the tax net instead further increasing tax rates for the people and the sectors of the economy 'already paying heavy taxes'. Hasnain Ashraf, another member of the alliance, said the power of the salaried class to pay the taxes 'has surpassed maximum level, leaving no financing to buy homes and cars'. The government should rather control its expenditures and fix the loss-making entities being maintained at the cost of the taxpayers, he added. According to the SCAP, it reached out to almost all the major political parties having representation in the Parliament to raise voice for the salaried class, but 'none of them did so'. The group said it would approach courts of law to fight their tax case if the government avoided giving relief in the upcoming budget to announced on June 10. 'The middle class (middle income groups) has been crushed. While inflation has doubled in the past three years, the minimum taxable income threshold remains stuck at Rs50,000 per month,' the SCAP stated in a press release. 'Continued neglect of this segment [salaried class] is contributing to the country's worsening brain drain. Emigration of skilled and educated professionals reportedly surged by 119% over the past year, with heavy taxation cited as a key factor,' it read. The agriculture sector, contributing nearly 20% of the country's gross domestic product (GDP), contributes less than 1% in tax revenue, according to the SCAP. 'Some landlords and privileged groups enjoy vast exemptions, while wage earners face tax rates as high as 35% with additional surcharge of 10%.' The alliance expressed concerns for 'growing informality in the economy', where businesses opt to pay salaries in cash to avoid high tax deductions-undermining documentation and long-term development. The SCAP is comprised of government and private sector employees, including from the armed forces, banks, education institutes, media, and corporate enterprises.
Express Tribune
27-04-2025
- Business
- Express Tribune
Reforming taxation for salaried class
Talking to members of the All Pakistan Textile Mills Association (Aptma) on Monday, the ombudsman said that tax revenue collection could be increased 'only through a fair, just, easy and efficient tax system'. PHOTO: FILE Listen to article The tax system in Pakistan is constitutionally required to be fair, just and equitable. However, a review of the current system reveals a concerning trend: those who are tax compliant are increasingly burdened, while those who avoid the tax net, often by conducting transactions outside the banking system, face little to no consequences. The salaried class exemplifies this disparity. Despite being among the most tax-compliant segments, regularly filing returns and having taxes withheld at source by employers, they frequently face increased tax rates and the erosion or elimination of available tax benefits. This unjust treatment is often justified by the government's inability to collect adequate revenue from other sectors due to weak enforcement or political constraints. As a result, the salaried class becomes the default target for higher taxation. While this may offer short-term relief in revenue collection, it undermines long-term objectives and fuels a culture that incentivises staying outside the tax net. With the federal budget due within a month, this is an opportune moment to advocate for reforms that support the salaried class, drawing inspiration from international best practices. It's worth noting that the government has projected a 55% increase in revenue collection from the salaried class for the current fiscal year compared to the previous year's collection of Rs368 billion. This increased reliance on the salaried segment will make it more challenging to introduce equitable and supportive tax measures. However, these challenges can be overcome with political will, sound policy design and robust enforcement. It is concerning that tax laws are often amended under pressure from external lenders, yet domestic reforms that promote fairness across all income groups are rarely prioritised. First and foremost, the tax rates applicable to the salaried class must be revisited. The current tax-free threshold should be raised from Rs0.6 million to Rs1.2 million per annum. Moreover, Pakistan rarely indexes its tax brackets to inflation, a globally accepted practice that prevents fiscal drag or bracket creep. Indexing ensures that rising nominal incomes due to inflation do not result in higher effective tax burdens, especially for low and middle-income earners. Far too often, modest salary increments are negated by disproportionate increases in tax liabilities. Another issue that lies with tax rates of salaried class includes that if a person's annual salary exceeds Rs4.1 million, a flat 35% tax rate applies, down from a previous threshold of Rs6 million, creating a steep cliff effect. There is a clear need to introduce additional tax slabs to avoid such abrupt increases. Additionally, inconsistencies between income slabs also merit attention. A salary increase from Rs2.2 million to Rs3.2 million results in a marginal tax rate hike of 5.26%, whereas an increase from Rs3.2 million to Rs4.1 million leads to a lesser rise of 3.64%. Such disparities disproportionately impact middle-income earners and highlight the need for comprehensive slab rationalisation. Unfortunately, Pakistan tends to emulate other countries' tax rate structures without adopting the corresponding tax benefits those countries offer. A recent example is the additional surcharge introduced via the Finance Act 2024, under Section 4AB of the Income Tax Ordinance 2001 (the Ordinance), applicable where the taxable income exceeds Rs10 million. This surcharge is levied even on individuals, including salaried persons and associations of persons (AOPs), and must be reconsidered or withdrawn. A holistic view reveals that the effective tax rate on salaried individuals often exceeds that paid by small business owners, especially those operating informally or under the minimum tax regime based on turnover. Salaried taxpayers are not allowed to deduct any personal expenses from their income. A standard deduction, offered in many countries, including India, should be introduced. India currently allows a standard deduction of INR 50,000 under the old tax regime and INR 75,000 under the new regime. Pakistan could implement a similar deduction without requiring any supporting evidence to cover the basic costs of employment, such as transportation and meals. This deduction could vary depending on the taxpayer's circumstances, with higher deductions for senior citizens, disabled persons, teachers, etc. Lawmakers in Pakistan could also consider introducing dual tax regimes for salaried individuals. One regime could offer lower tax rates but limit deductions to a standard deduction and a few basic tax credits. The other could allow a broader range of deductions and credits in exchange for slightly higher rates. Taxpayers should be given the option to choose the regime that suits them best. Other commonly available deductions internationally for salaried class include those for house rent, mortgage interest, life and health insurance premiums and expenses related to supporting dependents with disabilities or chronic illnesses. These costs significantly reduce their disposable income and should be deductible under a fair tax system. Pakistan currently allows a limited deduction for children's education expenses, but thresholds are too low to be meaningful. These limits should be substantially increased and eligibility should be extended to include the taxpayer's own education and that of other dependents. Additional incentives could include offering tax credits or benefits to salaried individuals who consistently file their returns on time. The ordinance contains multiple penalties for non-compliance, but very few rewards for voluntary and timely compliance. A simple tax credit could be granted in the next fiscal year for taxpayers who filed on time during the preceding year. Since most salaried tax is collected through withholding, this measure would not significantly impact revenue but would encourage compliance. Furthermore, the government could exempt compliant salaried individuals from audits and assessments, except in high-net-worth cases or where specific risk factors are identified. The language of Section 149 of the ordinance should be clarified to clearly outline which claims are permissible when tax is withheld by an employer. In cases where a salaried person receives refund in a prior year, the refund should either be allowed under Section 149 of the ordinance or processed automatically through a streamlined verification mechanism. Many additional reforms could help make the taxation of salaried individuals more just, efficient and supportive of broader economic goals. This segment is among the most documented and compliant in the country, yet it continues to bear a disproportionate tax burden due to weak enforcement in other parts of the economy. It is time to prioritise fairness and equity in tax system not just in principle, but in practice. The writer is a member of the Institute of Chartered Accountants of Pakistan
Express Tribune
25-03-2025
- Business
- Express Tribune
Overburdened with taxes
Listen to article The federal government's push to achieve macroeconomic stability continues to take its toll on the salaried class thanks to an unfair distribution of the tax burden across different segments of society and various sectors of the economy. According to the available data, the taxmen have collected a staggering Rs331 billion worth of income tax from the salaried class in the first eight months of the ongoing fiscal year. In contrast, the retailers, most of whom are unregistered, contributed a mere Rs23 billion in the same period in terms of withholding income tax. Thus, the salaried individuals contributed 1,350% more in taxes than the retailers, even though there is no dearth of retailers who are making much more than those in the highest monthly wage bracket. While the amount of income tax paid by exporters so far this year is not known, the figures for the previous fiscal year show that they paid a meagre Rs93.5 billion in taxes on an income of $30.6 billion, as against Rs368 billion contributed by salaried individuals in the same period. This means that this affluent segment of society contributed only a quarter of what the white-collar salaried workforce did. Still, the tax contribution from salaried individuals – which is far higher than should be due and far bigger than their capacity – is not enough for the rulers to seek relief for them from the IMF. A case in point is the rejection by the global lender of what was going to be a Pakistan Day gift to the nation in the form of a substantial Rs8 per unit cut in the power tariff. Before that an expected Rs14 per litre drop in the petrol price was held back too. But the poor salaried class continues to pay the price of being the only source of guaranteed revenues for the FBR. This speaks of the incompetence, inability and complicity of the tax collectors as regards extracting the due amount of tax from the big fish – even though they were only recently given a Rs32.5 billion package of incentives by the government meant to act as performance booster. And their performance is there for all to see!
Express Tribune
24-03-2025
- Business
- Express Tribune
Salaried class coughs up Rs331b in taxes
The salaried class paid staggering Rs331 billion income tax in the eight months of the current fiscal, which is 1,350% more than the taxes paid by retailers, but still not enough for the government to seek relief from the International Monetary Fund (IMF) for the marginalised segment. The total income tax contributions by the salaried people during July-February period of this fiscal year were Rs120 billion or 56% higher than Rs211 billion collected during the same period of the last fiscal year. The government of Prime Minister Shehbaz Sharif had targeted the collection of Rs75 billion additional from the salaried class for the full fiscal year 2024-25. The figure is already Rs120 billion higher and still four months are remaining in the close of the fiscal year. In the last year, the salaried class paid Rs368 billion in taxes. But despite this backbreaking burden on the salaried people, who pay taxes on the gross income without adjusting expenditures, the government did not take up the issue of lessening this burden with the IMF during the recently held talks. There were no discussions with the IMF to lower the tax burden of the salaried class, sources said. When contacted, FBR Spokesperson Dr Najeeb Memon said that the government would review the taxes on the salaried class in the upcoming budget exercise. In contrast to Rs331 billion paid by the salaried persons, the retailers, mostly unregistered, contributed merely Rs23 billion on account of withholding income tax on their purchases. The amount of tax that the traders paid under section 236-H was 1,350% less than the taxes paid by the salaried persons. The wholesalers and distributors also paid Rs16 billion withholding tax in eight months and ironic though almost half of them were unregistered with the FBR, said the sources. In the budget, the government had imposed 2.5% withholding tax on the traders in the hope that this would force them to come in the tax system. The increase in the rate did help collect Rs12 billion more from the traders but the intended objective could not be achieved. The traders passed on the cost of the additional tax to the end consumers. The government's Tajir Dost scheme to bring in 10 million traders in the net also failed badly and it has now stopped talking about it. The government was supposed to collect Rs50 billion from the retailers under the scheme, but it ended up collecting peanuts. The sources said that the FBR admitted before the IMF that the traders and the jewellers were the two hard nuts to crack. The FBR also confessed before the IMF that due to major design flaws, the Tajir Dost Scheme had failed. The IMF was briefed that the large traders also stopped the smaller ones from joining the scheme and as a result it could not expand the scheme to 43 cities. The FBR's plan to bring a minimum of 10 million retailers in the net had flopped, the IMF was told. The sources said that the Finance Minister Muhammad Aurangzeb had asked the FBR to begin the exercise to review the salaried class taxation with an objective to provide some relief. However, no such discussions took place with the IMF. In last June, the government massively increased the tax burden of the salaried persons by reducing the number of slabs, which put abnormal burden on the middle and upper middle-income groups. The maximum 35% rate is now unfairly charged at Rs500,000 monthly income and a 10% surcharge is also imposed, which takes the total tax rate to 38.5% for the highest slab. Where the government did not feel the pain of the salaried persons, it tried to negotiate with the IMF to reduce the tax burden of the real estate sector. The IMF did not accept the government's demand and has, for now, kept the rates unchanged. The details showed that non-corporate sector employees paid Rs141 billion income tax this year, which is higher by Rs42 billion or 43%. The corporate sector employees paid Rs101 billion in income tax, also higher by Rs37 billion or 56%. The provincial governments' employees paid Rs57 billion, up Rs28 billion or 96%. The federal government employees paid Rs34 billion, again higher by Rs14 billion or 66%. For the current fiscal year, the IMF has given Rs12.97 trillion tax target to FBR, which has already sustained Rs605 billion shortfall in eight months despite collecting Rs331 billion from the salaried persons. For the month of March, the tax target is Rs1.220 trillion that the FBR is again going to miss by a wide margin. Till Sunday, the FBR had collected Rs515 billion, leaving it with a gigantic task of generating Rs704 billion within this week. Friday will be the last working day before Eid holidays.
Express Tribune
08-02-2025
- Business
- Express Tribune
Salaried class likely to pay Rs570b in taxes
ISLAMABAD: The federal government is likely to further increase the tax burden on salaried individuals, with total tax collection from this segment expected to reach Rs570 billion in the ongoing fiscal year 2024-25. This means that the salaried class will pay 55% more tax compared to the previous year. According to the Federal Board of Revenue (FBR), salaried individuals contributed Rs368 billion in taxes last year, while Rs243 billion has already been collected in the first six months of the current fiscal year. This marks a 300% increase in tax collection from employees compared to the first six months of the previous year. The FBR data shows that five years ago, annual tax collection from the salaried class stood at Rs129 billion. In 2019-20, it was Rs129 billion, rising to Rs152 billion in 2020-21, and further increasing to Rs189 billion in 2021-22. In 2022-23, tax collection from salaried employees surged to Rs264 billion. The salaried class has now become the third-largest tax-paying sector.
