Salaried class pays over Rs266 billion in income taxes

Contribute twice as much as real estate as FBR leans on documented sectors

ISLAMABAD:

Salaried individuals paid Rs266 billion in income tax during the first half of the current fiscal year, contributing nearly one rupee out of every Rs10 collected in income taxes across the country.

Tax contributions by salaried persons, in both the public and private sectors, remained more than double the taxes paid by the real estate sector during the same period, according to provisional figures compiled by the Federal Board of Revenue (FBR) for the July–December period.

The statistics showed that salaried persons paid a little over Rs266 billion in income taxes, higher by Rs23 billion, or 9%, compared to the same period of the last fiscal year. The Rs266 billion income tax payments by salaried individuals were exclusive of book adjustments. In the last fiscal year, the income tax contribution, excluding book adjustments, stood at Rs243 billion.

Sources said that after adding book adjustments, the figure had already crossed Rs300 billion by the end of the first half of the current fiscal year. It is also exclusive of payments that a few contractual employees make under Section 153-B of the income tax law, the sources added.

Pakistan's salaried class remains unduly burdened and is a victim of the FBR's lethargic approach, which places the burden of tax collection on the existing pool of taxpayers, mainly salaried individuals and manufacturers. The salaried class pays about 38% of its gross income in taxes, which is significantly higher compared to regional countries and relative to the real estate sector and retailers.

In his address to the Pakistan Business Council (PBC) last month, the national coordinator of the Special Investment Facilitation Council (SIFC), Lt Gen Sarfraz Ahmed, had said: "We have made a mess of our fiscal situation and so the only thing the government can think of is taxation - and you (businessmen) are the easiest prey because you are already documented, already visible." The details showed that non-corporate employees paid the highest amount, Rs117 billion, in income tax, up 14% from last year. Corporate sector employees contributed Rs82 billion, also 13% higher than last year.

The FBR struggled to achieve its downward-revised tax target of Rs6.5 trillion and had to resort to taking heavy advances and slowing payments of taxpayers' refunds. Yet, it could hardly show a 10% increase in collection, which was only half the growth rate required to meet this year's annual tax target.

The FBR collected Rs3.03 trillion in income taxes during the first half of the fiscal year, with nearly one-tenth coming from salaried persons who pay taxes on their gross incomes without the option of adjusting their expenses.

Employees of provincial governments paid Rs39 billion in income tax, a 7% reduction compared to a year earlier. In contrast, federal government employees contributed Rs27 billion, an increase of 8%.

The government's new tax on wealthy pensioners, introduced in this year's budget for pensions exceeding Rs10 million annually, yielded very little, suggesting that annual collections may hardly reach Rs1 billion.

While succumbing to pressure from within, the government last month again allowed retired employees to claim more than one pension, undermining its stated objective of introducing pension reforms and cutting expenditure.

While the salaried class continues to see rising tax contributions, collections from traders remain limited. Several enforcement measures, including a ban on economic transactions by ineligible persons, were diluted or reversed.

The real estate sector also faced higher taxes, with increased rates for non-filers and the introduction of a new category for late filers. Withholding tax collections on plot sales rose by two-thirds to Rs87 billion, while collections on plot purchases fell 29% to Rs39 billion. In the budget, the government had lowered taxes on the purchase of plots but increased the rate on sales.

Cumulatively, the government collected Rs126 billion in withholding taxes from the real estate sector during the first half of the fiscal year, up by 17%.

Last month, the FBR had sharply increased property valuations for the Islamabad Capital Territory, particularly for residential and commercial areas under development. However, it later reversed these increases until the end of January. Valuations were raised by up to 900% for the C-sector of Islamabad, while those for the B-sector were increased by up to 150%.