PAKISTAN’S tax collection system needs a complete overhaul. The system squeezes individuals and segments that are already paying their taxes, and no serious effort is made to expand the tax net. It is FBR’s failure that all segments of society are not making a fair contribution to the national exchequer, and that the government has failed to bring agriculture, real estate and other sectors into the tax net as it should.
The flaws in our tax system are all too evident: the salaried class, which pays 38.5 per cent of its income in taxes, is the third-highest tax-paying segment of the country. Other high-paying segments are banks and business individuals that pay 53pc and 50pc tax respectively. According to estimates, by June 30, 2025, the salaried class will be contributing a whopping Rs500 billion to the national exchequer, which will be more than the combined contribution of the textiles and retail sector.
The imbalance in Pakistan’s taxation system is highlighted further by the fact that the contribution of the textile sector, which has more than a 60pc share in the country’s exports, increased only 7.4pc in FY2024 as compared to last year whereas the contribution of the salaried class increased 39.42pc on a year-on-year basis. It is high time the government realised the injustice and collected high taxes from those who maintain a wealthy lifestyle, instead of the segment which struggles to make ends meet.
Tax rates for the salaried class are applied on their gross salary whereas businesses are allowed to claim expenses against their income and pay tax on net income. Almost all tax credits/ rebates, etc, have been taken away from the salaried class, which has increased its burden. Article 25 of the Constitution guarantees the equality of all citizens and prohibits any discrimination. So why does the judiciary and civil and military bureaucracy still enjoy exemptions under the law?
The flaws of our tax system are all too evident.
A salaried individual has a fixed income that is used to pay all monthly expenses such as health, education, rent, drinking water and utility bills. Unfortunately, these expenses rise every month, but the income remains stagnant. Article 25-A binds the state to provide education to its children, but unfortunately, no government has been able to ensure its implementation or that of other provisions in Chapter 1 of the Constitution. Sadly, it has been observed that the objective of many of those the government has made the custodians of health and education sector is to mint money. Salaried people, even after paying a reasonable portion of their income in direct taxes, continue to pay multiple indirect taxes on groceries, fuel, utilities and multiple other expenditures.
Around the world, many countries have high tax rates. Germany, France, the Netherlands, Austria, Sweden and some other countries have tax rates that vary from 40pc to 55pc, but all of them have strong systems to facilitate taxpaying citizens. Pakistan’s government, on the other hand, has left citizens to fend for themselves after collecting high amounts of tax from them. The world over, tax that is collected is spent on providing facilities to citizens whereas in Pakistan a major chunk of the amount is spent on maintaining the lavish lifestyles of the bureaucracy and paying back debts.
The majority of salaried individuals belong to the middle class. A strong and prosperous middle class is a vital cog for any successful economy because whatever they earn, they mostly give back to the economy in the form of various expenditures. It is critical for the government that, instead of squeezing this class it gives it more financial freedom so that they not only prosper them-
selves but also help the lower strata of society emerge from poverty.
The finance minister of Pakistan has hinted at relief for the salaried class in the upcoming federal budget. The best thing the government can do is to end direct tax deduction from salaries. If this is not possible, then it should raise the minimum tax slab considerably. At the moment, a person who is earning Rs600,000 per annum is part of the tax net. This is a grave injustice as making ends meet on a meagre salary/income of Rs50,000 per month is near impossible. It is recommended that if keeping voiceless salaried individuals in the tax net is imperative, then the minimum slab should be raised considerably to include only those individuals in the tax net whose annual earnings are Rs3.6 million or more.
If substantial relief is not provided to the salaried class, their survival will be at stake, and it is feared that wrong initiatives may push more middle-class people towards poverty.
The writer is a freelance contributor.
Published in Dawn, May 6th, 2025
