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Introduction:
In the fiscal year 2022-23, Pakistan witnessed a surprising discrepancy in tax contributions, with the salaried class emerging as the top income tax contributor. They paid a staggering Rs264.3 billion, nearly 200% higher than the combined income tax paid by exporters and retailers. Data released by the Federal Board of Revenue (FBR) has sparked discussions on the disproportionate burden on salaried individuals and the need for fair taxation policies.
Salaried Class Leading the Way:
Salaried individuals in Pakistan took the lead in contributing to the nation’s income tax, paying a significant sum of Rs264.3 billion. This marked an impressive increase of over Rs75 billion or 40% compared to the previous year. The rise was attributed to the imposition of higher tax rates, reaching up to 35% on their earnings.
Challenges Faced by the Salaried Class:
Despite facing historically high inflation rates, the salaried class has been subjected to increased taxation in the latest budget. Moreover, they witnessed an additional tax burden if their monthly earnings exceeded Rs200,000. In contrast, around 5,000 retailers were exempted from stricter registration conditions, raising concerns about the fairness of taxation policies.
Withholding Taxes as a Reliable Revenue Source:
During the preceding fiscal year, the FBR collected over Rs2 trillion through withholding taxes, constituting 61% of the total income tax generated in that period. However, there have been concerns about the ease of collecting withholding taxes, especially from non-filers at double rates, which has become a reliable revenue source for the FBR.
Criticism of Tax Policies:
The Salaried Class Alliance has expressed apprehension over the prioritization of additional taxation on existing taxpayers while allowing the informal sector to thrive. The disproportionately high tax collections from contractors, savings account holders, and salaried individuals have raised concerns about the lack of representation of the salaried class in decision-making processes, unlike exporters and retailers.
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Disparity in Tax Contributions:
Provisional figures revealed a stark contrast in tax payments between the salaried class, exporters, and retailers. Exporters, despite earning $27.7 billion in the last fiscal year, contributed only Rs74 billion in taxes. Similarly, retailers, who account for approximately 19% of the economy, contributed a mere 0.4% to the total income tax collection.
Criticism of IMF Approach:
The International Monetary Fund’s (IMF) approach to taxation has come under criticism for disproportionately burdening the salaried class. The lack of representation of the salaried class in decision-making has sparked debates on the need for fair and equitable taxation policies.
Conclusion:
The stark contrast in tax contributions between the salaried class, exporters, and retailers has drawn attention to the need for fair taxation policies in Pakistan. As the government works to bolster tax revenues and strengthen the economy, it is essential to consider the impact of taxation on different income groups. Striking a balance in taxation policies can lead to a more equitable and sustainable economic system, benefitting all segments of society.
