LAHORE: Salaried class has paid a record Rs391 billion in income tax during the first nine months of the current fiscal year, a figure that starkly highlights a significant disparity in the nation’s tax collection system. This amount represents approximately 10% of the total income tax collected across Pakistan, placing a disproportionate burden on this documented segment of the population.
According to provisional collection estimates compiled by the Federal Board of Revenue (FBR), the Rs391 billion collected from salaried individuals during July-March FY24-25 is Rs23 billion more than the total income tax paid by this group throughout the entire 12-month period of the previous fiscal year.
Disparity compared to other sectors
The data reveals a striking contrast in the tax contributions of different economic segments. For every Rs100 collected in total income tax during the July-March period, the salaried class contributed Rs10. In comparison, the ‘blue-eyed’ traders contributed a mere 60 paisa out of every Rs100 collected, according to the report.
Specifically, in contrast to the Rs391 billion paid by salaried individuals, retailers, most of whom are reportedly unregistered, contributed only Rs26 billion on account of withholding income tax on their purchases during the same nine-month period. This means the amount of tax paid by traders under section 236-H was a staggering 1,420% less than that paid by salaried persons.
Wholesalers and distributors also paid Rs17.5 billion in withholding tax over the nine months, with nearly half of them reportedly unregistered with the FBR.
Exceeding targets and lack of relief discussion
The government of Prime Minister Shehbaz Sharif had initially targeted an additional Rs75 billion in income tax from the salaried class for the full fiscal year 2024-25. However, collections have already surpassed Rs140 billion more than the previous year’s total, with three months still remaining in the fiscal year. Income tax from the salaried class in the last nine months has seen a 56% increase compared to the corresponding period last fiscal year.
Despite this significant and, for many, “backbreaking” burden – where salaried individuals are taxed on their gross income without adjustments for expenditures – the issue of alleviating this burden was reportedly not raised by the government during its recent discussions with the International Monetary Fund (IMF).
FBR spokesman Dr. Najeeb Memon commented, stating, “We are considering alternate options to reduce the burden of the salaried class without compromising progressivity in taxation.”
An IMF team is scheduled to arrive in Pakistan on May 14th to review the budget for the next fiscal year before its expected presentation in the National Assembly around June 4th. The team will remain in the country until May 23rd.
Sources suggest that the higher-than-anticipated collection from salaried individuals this year could potentially be a factor against significantly lowering their tax rates in the upcoming fiscal year due to the substantial revenue implications.
Impact of Last Year’s Budget Changes
In the budget presented last June, the government substantially increased the tax burden on salaried individuals by reducing the number of tax slabs. This change disproportionately affected middle and upper-middle-income groups. Currently, the highest tax rate of 35% applies to those earning Rs 443,000 monthly, with an additional 10% surcharge pushing the effective rate to 38.5% for the highest income bracket.
The data further breaks down collections by sector: Non-corporate sector employees paid Rs166 billion (up by Rs50 billion or 43%), corporate sector employees paid Rs117 billion (up by Rs40 billion or 52%), provincial government employees paid Rs69 billion (up by Rs34 billion or 103%), and federal government employees paid Rs39 billion (up by Rs15.5 billion or 65%).
Against the backdrop of high collections from the salaried class, the FBR is facing an overall tax target shortfall. The IMF had set a target of Rs12.97 trillion for the FBR for the current fiscal year, but the board has already sustained a Rs714 billion shortfall in the first nine months.
While the IMF has reportedly lowered the target to Rs12.3 trillion, the FBR’s internal estimates suggest that the final collection may still range around Rs11.7 trillion. This shortfall comes despite the government imposing Rs1.3 trillion in additional taxes in the budget. The FBR attributes its collection challenges primarily to lower-than-estimated economic growth and inflation.
