We’re not shocked: Salaried class pays 200% more tax than exporters, retailers

In the fiscal year 2022-23, Pakistan’s salaried class emerged as the leading contributor to the nation’s income tax, making a substantial contribution of Rs264.3 billion. Astonishingly, this amount was nearly 200 per cent higher than the combined income tax paid by the country’s exporters and largely undertaxed retailers.

Data collected and released by the Federal Board of Revenue (FBR) unveiled that salaried individuals paid a total of Rs264.3 billion in taxes during the fiscal year, marking an impressive increase of over Rs75 billion or 40 per cent compared to the previous year. This rise was attributed to the imposition of up to a 35 per cent tax rate on their earnings.

Ranked as the fourth-largest contributor to withholding taxes, following contractors, bank depositors, and importers, the salaried class has faced increased taxation in the latest budget. Despite grappling with this added burden alongside historically high inflation rates, the government once again raised taxes on salaried individuals earning more than Rs200,000 per month in the recent budget. In a surprising move, around 5,000 retailers were relieved from stricter registration conditions.

It is noteworthy that during the preceding fiscal year, the FBR managed to collect over Rs2 trillion through withholding taxes, accounting for 61 per cent of the total income tax generated in the same period. However, concerns were raised over the ease of collecting withholding taxes, especially from non-filers at double rates, which has become a reliable revenue source for the FBR.

The Salaried Class Alliance expressed apprehension over the prioritisation of additional taxation on existing taxpayers while allowing the informal sector to thrive. The highest income tax collections came from contractors, savings account holders, importers, salaried individuals, non-filers’ electricity bills, telephone & mobile phone users, and dividend income. According to Express Tribune, other significant contributors included taxes on property transactions, exports, foreign income fees, brokerage commissions, and car registrations.

Comparatively, provisional figures revealed that exporters and retailers combined paid Rs175 billion less in taxes compared to the salaried class. Despite earning $27.7 billion during the last fiscal year, exporters contributed only Rs74 billion in taxes. Although their tax contribution increased by 17.4 per cent from the previous year, it did not match the rise in their income in rupee terms. Retailers, subject to a 0.5 per cent advance tax on sales, contributed a mere Rs15.6 billion, reflecting the lowest contribution among income groups. Surprisingly, despite accounting for approximately 19 per cent of the economy, retailers and wholesalers only contributed 0.4 per cent to the total income tax collection.

The approach of the International Monetary Fund (IMF) came under criticism for disproportionately burdening the salaried class, which lacks representation in the corridors of power, unlike exporters and retailers.

Lastly, tax collection from contractors and service providers reached an impressive Rs391 billion in the last fiscal year, marking the largest single-income tax collection head over which the FBR has no control. Additionally, profits on debt witnessed a remarkable 106 per cent increase, amounting to Rs320 billion, reflecting higher interest rates and increased savings. Importers also contributed significantly, paying Rs290 billion in income tax on various types of imports, ranking as the third-largest contributor to withholding taxes.