Pakistan’s income tax collections have witnessed a significant surge of Rs100 billion in the first seven months of the fiscal year, primarily driven by a sharp increase in payments from the salaried class. While this boost has helped offset shortfalls in sales tax and customs duty revenues, it has ignited concerns about the disproportionate tax burden shouldered by salaried individuals amidst a crippling cost of living crisis.
Between July and January, income tax payments from salaried individuals reached a staggering Rs285 billion, a dramatic leap from the Rs185 billion collected during the same period last year. This Rs100 billion year-on-year increase represents a 53% jump, highlighting the immense pressure on salaried incomes. Adding to the strain, this seven-month collection figure has already surpassed the government’s initial full fiscal year estimate by Rs25 billion, underscoring the unexpectedly high tax contribution from this segment.
Acknowledging the growing unease, Minister of State for Finance, Ali Pervaiz Malik, hinted at potential relief in the upcoming budget. Speaking at a seminar on “Navigating Ease of Doing Business in Pakistan,” Malik stated, “The tax burden on the salaried class is more than its capacity to pay, and some of it will be shifted to other sectors in the budget.”
Malik revealed that despite Prime Minister Shehbaz Sharif’s reservations, an additional burden of Rs75 billion was imposed on the salaried class in the last budget to comply with conditions set by the International Monetary Fund (IMF). However, the current data reveals that the actual burden has already exceeded this figure significantly within just seven months, leaving salaried workers facing a severe financial squeeze with no corresponding social safety net.
Further analysis reveals a widespread impact across different segments of the salaried class:
- Non-Corporate Sector Employees: Tax payments surged to Rs122 billion, a 41% increase (Rs36 billion) year-on-year.
- Corporate Sector Employees: Contributions rose to Rs86 billion, marking a 50% jump (Rs28.6 billion).
- Provincial Government Employees: Witnessed the most dramatic increase at 96% (Rs23 billion), reaching Rs48 billion in tax payments.
- Federal Government Employees: Experienced a 63% rise (Rs11 billion), contributing Rs29 billion in income tax.
While the income tax surge provides a welcome cushion against underperformance in other tax categories, it also exposes the government’s continued struggle to broaden the tax base and effectively tap into other sectors. Notably, wholesalers and traders remain largely outside the tax net, with the government primarily relying on easily collected “at-source” deductions from registered entities as a measure of success.
The seminar also touched upon broader economic challenges. Minister Malik admitted that high taxation in certain sectors, like the beverage industry, is inadvertently fueling the growth of the informal economy. This point was starkly illustrated by the display of smuggled and unregistered infant nutrition products, significantly cheaper than those from registered businesses and posing potential health risks. Representatives from the Baby Food and Nutrition Council and provincial food authorities highlighted the urgent need for regulatory bodies to address the proliferation of substandard and smuggled goods.
Jameel Qureshi, Secretary of the Special Investment Facilitation Council (SIFC), also addressed the seminar, outlining SIFC’s efforts to attract investment and improve the business environment. He mentioned progress on making the Pakistan Sovereign Wealth Fund operational, despite ongoing concerns raised by the IMF regarding its governance structure and mandate. Qureshi detailed SIFC’s focus on reducing electricity prices, optimizing Special Economic Zones, and developing bankable projects to stimulate economic growth. He emphasized the need for an export-led growth model, efficient decision-making, and a robust dispute resolution mechanism, including the appointment of an Investment Ombudsman by the Chief Justice of Pakistan.
In conclusion, while the surge in income tax collection offers a temporary fiscal reprieve, the disproportionate burden on the salaried class raises serious questions about tax fairness and economic sustainability. The government’s acknowledgement of this issue and hints at potential relief in the upcoming budget will be closely watched. Furthermore, addressing the challenges of tax evasion in other sectors and creating a truly conducive environment for business and investment remain critical for long-term economic health.
