Salaried class paid Rs315b in Jul-Jan

ISLAMABAD:

Income tax contributions by Pakistan's cornered salaried class further jumped by 10% to Rs315 billion during the first seven months of this fiscal year, as one out of every three Pakistanis who left the country last year in search of jobs and better salaries were skilled to highly qualified people.

According to provisional data compiled by the Federal Board of Revenue (FBR), salaried individuals paid Rs315 billion in income tax during the July-January period of the current fiscal year. This was Rs30 billion, or 10.5%, more than the already higher base of Rs285 billion recorded in the same period of the last fiscal year.

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.

The Rs315 billion income tax payments by salaried individuals were exclusive of book adjustments. They were also exclusive of payments that a few contractual employees made 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 government'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.

However, there is mere lip service on the part of the government to ease the woes of salaried persons and, as a result, skilled to highly skilled and highly qualified people are leaving Pakistan to secure better jobs and earn salaries subject to lower taxes. Pakistan's information technology — trained professionals are leaving for better destinations.

In the last calendar year, out of a total of 762,000 people who left Pakistan, about 254,180 were either skilled, highly skilled or highly qualified, according to the Bureau of Immigration and Overseas Employment.

About 222,171 skilled people left the country, while another 13,657 were highly skilled and 18,352 were highly qualified persons, according to the immigration bureau. The details showed that 5,659 chartered accountants and 3,795 doctors left Pakistan in 2025.

Remittances by overseas Pakistanis are the only reason Pakistan has not defaulted, as exports fell 7% in the first seven months of this fiscal year, while foreign direct investment plunged 47% in six months compared to a year ago.

However, the government does not agree that all skilled people are leaving Pakistan.

During a meeting of the Senate Standing Committee on Finance held this week, Finance Minister Muhammad Aurangzeb stated that Pakistan was annually earning around $4 billion to $5 billion from information technology exports, which suggested that skilled people were still working in the country.

The minister said that nobody acknowledged the fact that the government had reduced the income tax rate from 5% to just 1% for people earning Rs100,000 per month. He, however, admitted that the government could not reduce income tax rates for high earners due to certain limitations under the International Monetary Fund (IMF) programme.

The details showed that non-corporate sector employees paid the highest amount of Rs139 billion in income taxes, up 14% from last year. Corporate sector employees coughed up Rs100 billion, also 16% higher than last year.

Employees of provincial governments paid Rs44 billion in income taxes, which was 8% less than last year, marking the second consecutive month when income tax contributions from provincial government employees declined.

Federal government employees contributed Rs31.5 billion, an increase of 9% over last year.

The government's new tax on wealthy pensioners, introduced in this year's budget for pensions exceeding Rs10 million annually and for those aged under 70 years, yielded only Rs30 million in the first seven months of the fiscal year.

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.

During the current fiscal year, the government introduced many measures to broaden the tax base but eventually rolled them back due to external pressures. FBR Chairman Rashid Langrial has promised the Standing Committee on Finance to reveal the names of all those "respected people of society" who were creating hurdles in the enforcement drive, but only behind closed doors and in the absence of the media.

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 63% to Rs106 billion during the first seven months of the fiscal year.

Withholding tax collections on plot purchases fell 29% to Rs47 billion due to a reduction in rates. In the budget, the government had lowered taxes on the purchase of plots but increased the rate on sales.

Cumulatively, the government collected Rs152 billion in withholding taxes from the real estate sector during the first seven months of the fiscal year, up 17%.

Last month, the FBR again increased property valuations for the Islamabad Capital Territory, particularly for residential and commercial areas under development, by up to 75%. It had earlier reversed increases of up to 900% until the end of January due to abnormal rate hikes and the inclusion of Defence Housing Authority phases in the ICT notification.