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In the fiscal year 2022-23, Pakistan’s salaried class made a significant contribution to income tax collection, paying a total of Rs264.3 billion, nearly 200% more than the combined taxes paid by the country’s exporters and undertaxed retailers. Data compiled by the Federal Board of Revenue (FBR) revealed that salaried individuals paid taxes at rates of up to 35%, and the amount collected from them increased by over Rs75 billion or 40% compared to the preceding year.
Despite being heavily taxed, salaried people remained the fourth-largest contributors to withholding taxes, following contractors, bank depositors, and importers. The FBR has not yet officially released these figures.
In the last budget, the government increased taxes on the salaried class, leading to higher tax collections from this segment. However, despite these higher taxes, the government again raised taxes on salaried individuals earning more than Rs200,000 per month in the recent budget, while simultaneously relaxing registration conditions for around 5,000 retailers.
During the previous fiscal year, the FBR collected over Rs2 trillion through withholding taxes, accounting for 61% of the total income tax generated. Withholding tax collections, especially from non-filers at double rates, have become a significant revenue source for the FBR.
The Salaried Class Alliance expressed concerns over focusing on existing taxpayers for more revenue while allowing the informal sector to grow, potentially hindering overall economic growth.
Data from the FBR revealed that the highest income tax collections were from contractors, savings account holders, importers, salaried persons, non-filers’ electricity bills, telephone and mobile phone users, and dividend income. Other major revenue sources included taxes on property transactions, exports, foreign income fees, brokerage commissions, and car registrations.
Comparatively, exporters and retailers combined paid Rs175 billion less in taxes than the salaried class. While exporters earned $27.7 billion, they paid only Rs74 billion in taxes, equivalent to 1% of their gross receipts. Similarly, retailers contributed a mere Rs15.6 billion through a 0.5% advance tax on sales, despite their share in the total economy being around 19%.
The IMF’s approach of burdening the salaried class, which lacks representation in the power corridors unlike exporters and retailers, has also been criticized. Tax collection from contractors and service providers increased by 3% to Rs391 billion, while income from profit on debt jumped 106% to Rs320 billion due to higher interest rates and increased savings.
Importers contributed Rs290 billion to income tax on various imports, becoming the third-largest contributor to withholding taxes. The income tax disparity among different segments of society has raised concerns about the overall fairness of the tax system in Pakistan.
