Income Tax Surges Rs100 Billion in 7 Months

Introduction

The salaried class in Pakistan has faced a significant tax burden over the past seven months, with income tax collections surging to Rs285 billion. This marks a staggering increase of Rs100 billion compared to the previous year. As the government struggles to meet fiscal targets, Minister of State for Finance Ali Pervaiz Malik has hinted at possible relief measures in the upcoming budget.

Sharp Rise in Income Tax Collection

Breakdown of the Rs100 Billion Surge

Over the past seven months, salaried individuals have paid Rs285 billion in income tax, compared to Rs185 billion during the same period last year. This unexpected increase is Rs25 billion more than the government’s projected tax revenue for the full fiscal year.

Minister Ali Malik acknowledged that this tax burden exceeds the salaried class’s capacity and hinted that adjustments would be made to redistribute the burden across other sectors.

Increased Taxation Due to IMF Conditions

During a seminar on “Navigating Ease of Doing Business in Pakistan,” Ali Malik revealed that despite Prime Minister Shehbaz Sharif’s reluctance, the government had to impose Rs75 billion in additional taxes on salaried individuals to comply with International Monetary Fund (IMF) conditions. However, this additional tax burden has already surpassed initial estimates, indicating a much heavier financial load than anticipated.

Who Paid the Most? Taxation Across Different Employment Sectors

Tax Contributions by Different Employee Groups

The breakdown of income tax contributions shows a significant increase across all employment sectors:

• Non-corporate sector employees: Rs122 billion (up by Rs36 billion or 41%)
• Corporate sector employees: Rs86 billion (up by Rs28.6 billion or 50%)
• Provincial government employees: Rs48 billion (up by Rs23 billion or 96%)
• Federal government employees: Rs29 billion (up by Rs11 billion or 63%)

This massive surge has raised concerns about whether the current tax structure is fair and sustainable.

Struggle to Tax the Non-Salaried Sector

While salaried individuals are bearing a heavy tax burden, the government has struggled to collect due taxes from wholesalers and traders. The reliance on at-source tax deductions from non-registered traders highlights an ongoing challenge in broadening the tax base.

Delayed Legislation and Regulatory Challenges

National Assembly Delays Economic Transaction Bill

The National Assembly recently postponed approval of a bill aimed at banning economic transactions by ineligible persons to support the real estate sector. This delay further complicates the government’s efforts to regulate financial transactions and ensure tax compliance.

Informal Markets and the Smuggling Problem

High taxation on industries, including the beverage sector, has fueled the growth of informal markets. During a seminar organized by CORE and the Baby Food and Nutrition Council, experts highlighted the risks posed by smuggled and unregistered children’s nutrition products, which are significantly cheaper than registered ones but pose severe health hazards.

Dr. Usman Bhatty from the Baby Food and Nutrition Council described below-standard infant formula products as a “ticking bomb,” urging regulatory agencies to take immediate action. Asif Khan, Director of the Balochistan Food Authority, admitted that food and nutrition products smuggled from Iran continue to flood the market unchecked.

Special Investment Facilitation Council (SIFC) and Economic Growth

Role of SIFC in Attracting Investment

Jameel Qureshi, Secretary of the Special Investment Facilitation Council (SIFC), highlighted efforts to attract foreign investment and remove bureaucratic barriers. He emphasized the need for a transition to an export-led growth model and a long-term economic roadmap.

Sovereign Wealth Fund Faces IMF Objections

Pakistan’s Sovereign Wealth Fund, enacted in 2023, aimed to transfer shares of profitable state-owned entities to raise money through international sales. However, the IMF has raised concerns about the fund’s governance structure and legal mandate, effectively stalling its progress.

The finance ministry had committed to amending the law by December 2024, but disagreements between the IMF and the government have delayed necessary changes.

Need for Structural Economic Reforms

Qureshi stressed the importance of reducing electricity prices, optimizing Special Economic Zones (SEZs), and preparing feasibility studies for 100 bankable projects. He noted that bureaucracy often discourages investors, and the SIFC aims to address these inefficiencies.

Future Outlook: Policy Changes and Investment Reforms

To foster sustainable economic growth, Qureshi called for distinguishing between beneficial and detrimental foreign investments. He also confirmed that the Chief Justice of Pakistan would soon appoint an Investment Ombudsman to handle disputes.

FAQs

1. Why has income tax collection increased so significantly?

Income tax collection has surged due to increased taxation on salaried individuals, driven by IMF conditions and the government’s fiscal policies.

2. Will there be any tax relief for the salaried class in the next budget?

Minister Ali Pervaiz Malik has hinted at shifting some of the tax burden from salaried individuals to other sectors in the upcoming budget.

3. Why is the government struggling to tax the non-salaried sector?

The government faces challenges in taxing wholesalers and traders, leading to an over-reliance on salaried individuals for tax revenue.

4. What is the impact of high taxation on the beverage industry?

Excessive taxation has fueled the informal market, with smuggled and unregistered products posing health risks and reducing tax revenue.

5. What is the role of the SIFC in Pakistan’s economic growth?

The SIFC focuses on attracting foreign investment, reducing bureaucratic hurdles, and optimizing Special Economic Zones to boost economic growth.

Conclusion

The rapid increase in income tax collections highlights the growing financial strain on the salaried class. While the government acknowledges the disproportionate tax burden, challenges remain in broadening the tax base and ensuring compliance from all economic sectors. With upcoming budget deliberations, the focus will be on balancing tax policies to promote economic growth while easing the burden on salaried individuals.