The Auditor General of Pakistan (AGP) has revealed that a significant jump in withholding tax (WHT) collection during FY 2023-24 was primarily driven by higher tax rates imposed on the salaried class.
According to the AGP’s Inland Revenue and Customs Audit Report (2024-25), withholding taxes remain the backbone of Pakistan’s tax collection system because they are deducted at source by designated withholding agents. This mechanism ensures easier enforcement, with WHT contributing Rs 2,740.10 billion out of the total Rs 4,530.70 billion direct tax collection during FY 2023-24 — a hefty 60.47% share.
The report highlighted that major components of WHT include deductions on contracts, exports, bank interest, and other financial transactions, many of which are categorized under the minimum or final tax regime. Interestingly, the audit noted that these collections were “indirect in nature” but were still being classified and reported as direct taxes by the Federal Board of Revenue (FBR).
Furthermore, the AGP pointed out that withholding on items such as telephone bills and property purchases was adjustable. However, due to low compliance, particularly by non-filers, the potential benefit of these adjustments was not availed, leading to higher effective taxation for many taxpayers.
Overall, FBR collected Rs 1,650.75 billion under various withholding heads in FY 2023-24 — up Rs 429.69 billion compared to the previous year. The AGP categorically linked this surge to enhanced tax rates on salaried individuals, underscoring the increasing reliance on compliant taxpayers while a large portion of the economy remains undocumented.
Tax experts warn that over-dependence on the salaried class, without expanding the tax net to other sectors, creates inequity and adds pressure on documented income earners. The AGP’s findings may further fuel the ongoing debate on Pakistan’s tax policy and the urgent need for broadening the tax base.
