Pakistan’s 75pc rule under Part I of the First Schedule to the Income Tax Ordinance, 2001, can change the tax rates applicable to an individual’s entire taxable income, including salary.

A second income is supposed to give a salaried household some breathing room. In Pakistan, it can also change the tax treatment of the salary that household already depends on.

An engineer opts for a weekend assignment. A doctor sees patients after hospital hours. Both expect to pay tax on the additional earnings. What they may not expect is that declaring those earnings can withdraw the benefit of salaried tax rates from income they were already receiving.

The reason lies in a condition attached to the salaried rate schedule. Salary must exceed 75pc of taxable income. If it does not, the general individual schedule applies to the combined income taxed under the ordinary slabs. The salary loses the benefit of the salaried schedule.

Salary must exceed 75pc of total taxable income. If it does not, it loses the benefit of normal tax

Consider an illustrative case for tax year 2027. A consultant doctor earns Rs5 million in taxable salary and Rs7m in net taxable profit from a lawful evening practice. Allowable practice expenses have already been deducted. Salary accounts for only about 42pc of total Rs12m, so the doctor fails the 75pc test.

On the salary alone, the base income tax is Rs802,000. When the practice profit is added, the combined base tax becomes Rs4.49m. The extra Rs7m, therefore, adds about Rs3.69m to the tax bill, or nearly 53pc of that additional profit.

There is no statutory 53pc tax rate here. The result includes the cost of switching schedules on the income already being earned. Part of the tax triggered by the evening practice falls back on the salary earned during the working day.

This is a high earner, and a substantial tax contribution is entirely reasonable. The objection is to the abrupt withdrawal of the treatment Parliament has chosen for employment income. If salary deserves a different schedule, taking on independent work should not suddenly remove that treatment from the salary itself. The same eligibility rule also applies to employees earning much less.

The distinction matters to employees because their salary is already visible. Tax is deducted through payroll, with little room to postpone the bill. The provisional FBR figures reportedly put salary income-tax collections at about Rs633bn in FY26. That contribution deserves careful scrutiny of the rules applied to it.

The treatment of work-related expenses also differs. A business can generally deduct qualifying expenses in calculating taxable profit. An employee has no comparable general deduction against salary for necessary work expenses paid personally. There are specific exemptions and credits, but the broad restriction on employment expenses remains.

For households looking for ways to cover school fees or medical bills, additional work can be one of the few available options. They need to know what they will retain from that effort. A tax system that changes the treatment of an existing salary adds uncertainty to that decision. Publishing clearer calculators would help, but the rule itself needs attention.

The government should replace the 75pc cut-off with a method that preserves appropriate relief on the salary component while taxing additional earnings progressively. A salary tax credit or a carefully designed separate calculation could achieve this.

The 20pc allowance permitted against “income from property” offers one possible point of comparison, although the two categories of income have different tax treatment. The finance ministry should publish the cost of reform and show how the change would affect people at different income levels.

Simply applying two complete sets of slabs would create another problem. It would repeat the tax-free threshold and lower-rate bands, giving some taxpayers an advantage merely because their income comes from different sources. A workable reform should retain one personal allowance and safeguards against artificial income-splitting arrangements. The aim is to remove the sudden change in salary treatment while ensuring that taxpayers make a fair contribution to their overall income.

As the country needs revenue, higher earners should carry more of the burden. It also needs employees to have an incentive to declare the work they do beyond their main job. Reforming this cut-off would make the tax consequences of that work easier to understand and defend.

An employee taking on an extra evening’s work should be able to count on the tax treatment of the salary already earned.

The writer is a Fellow Chartered Accountant and finance consultant based in Peshawar.

Published in Dawn, The Business and Finance Weekly, November 2nd, 2026