The salaried class in Pakistan has paid a staggering Rs331 billion in income tax during the first eight months of the current fiscal year, a figure that is 1,350% higher than the taxes contributed by retailers. Despite this hefty tax burden, the government has not raised the issue of providing relief to salaried individuals in its discussions with the International Monetary Fund (IMF).
During the period from July to February, the income tax paid by salaried people increased by 56%, reaching Rs120 billion more than the Rs211 billion collected in the same months last year. The government had aimed to collect Rs75 billion more from salaried individuals for the entire fiscal year 2024-25, but the Rs120 billion increase has already been achieved with four months still left in the year.
Despite this significant contribution, which includes taxes paid on gross income without any deductions for expenditures, the government did not bring up the issue of easing the burden on salaried individuals during recent talks with the IMF. According to sources, the government did not discuss any potential tax relief for salaried people in these discussions. However, FBR spokesperson Dr. Najeeb Memon stated that the issue will be reviewed in the upcoming budget.
In stark contrast, retailers, many of whom are unregistered, contributed only Rs23 billion through withholding tax on their purchases, a staggering 1,350% less than what the salaried individuals paid. Similarly, wholesalers and distributors contributed just Rs16 billion in withholding tax, despite many being unregistered with the Federal Board of Revenue (FBR).
The government had hoped that imposing a 2.5% withholding tax on traders would encourage them to register and join the formal tax system. While this move resulted in Rs12 billion in additional tax collection, the goal of integrating traders into the tax system has largely failed. The Tajir Dost scheme, intended to bring 10 million traders into the tax net, also failed to meet its targets, raising concerns about the government’s tax policy effectiveness.
The FBR acknowledged before the IMF that it had struggled to bring traders and jewelers into the tax system, with the Tajir Dost scheme failing due to major design flaws. The large traders also hindered smaller ones from participating in the program, causing it to fall short of its expansion goals.
Despite the financial strain on salaried individuals, the government did not seek to reduce their tax burden in discussions with the IMF, though Finance Minister Muhammad Aurangzeb had instructed the FBR to review salaried class taxation to provide some relief. Last June, the government had significantly increased taxes on salaried individuals by reducing the number of tax slabs, resulting in an excessive burden on the middle and upper-middle-class income groups.
Meanwhile, the corporate sector and provincial government employees paid higher taxes, with corporate sector employees contributing Rs101 billion, up by 56%, and provincial government employees paying Rs57 billion, marking a 96% increase.
Despite these significant contributions, the government is facing a massive shortfall in meeting its annual tax target of Rs12.97 trillion, with the FBR already falling short by Rs605 billion after eight months. For the month of March, the FBR has a tax target of Rs1.22 trillion, but it is expected to miss this target by a wide margin, as only Rs515 billion has been collected so far. The FBR now faces a daunting challenge of generating Rs704 billion in just one week before the Eid holidays.
