Salaried individuals paid a whopping Rs266 billion in income tax during the first half of the current fiscal year, accounting for nearly one-tenth of the total income tax collected nationwide.
According to provisional figures compiled by the Federal Board of Revenue (FBR) for the July–December period, tax payments from salaried employees in both the public and private sectors were more than twice the amount collected from the real estate sector during the same period.
The data suggested that salaried individuals paid over Rs266 billion in income tax, marking an increase of Rs23 billion, or 9%, as compared to the corresponding period last year when income tax collection from salaried persons, excluding book adjustments, stood at Rs243 billion.
Book adjustments refer to the process of reconciling the profit and loss figures recorded in book income with different rules and regulations for calculating taxable income as per the Income Tax Ordinance of 2001.
Reports quoted sources as saying that once book adjustments are included, income tax contributions from salaried individuals had already crossed Rs300 billion by the end of the first half of the fiscal year.
The figure also does not include payments made by certain contractual employees under Section 153-B of the income tax law.
Despite this, the salaried class still bears a disproportionate tax burden, mostly because of what critics claim is the FBR’s dependence on a taxpayer base that has already been established. Large portions of the economy remain outside the tax net, with manufacturers and salaried persons continuing to be the main contributors.
The salaried class contributes about 38% of their gross income in taxes, which is far more than the average for the region and much more than contributions from industries like retail and real estate.
Lt Gen Sarfraz Ahmed, the national coordinator of the Special Investment Facilitation Council (SIFC), also acknowledged the imbalance during a speech to the Pakistan Business Council (PBC) last month.
He claimed that the government’s fiscal difficulties had resulted in an excessive reliance on taxes, specifically targeting documented and visible taxpayers.
The data further showed that non-corporate employees contributed the highest share among salaried individuals, paying Rs117 billion in income tax – an increase of 14% from last year.
Employees in the corporate sector, on the other hand, paid Rs82 billion, reflecting a 13% rise as compared to the same period of the previous fiscal year.
During the first half of the fiscal year, the FBR collected Rs3.03 trillion in income taxes overall. Nearly 10% of this amount came from salaried individuals, who pay taxes on their gross incomes without the ability to adjust expenses.
Despite this contribution, FBR struggled to meet its downward-revised tax target of Rs6.5 trillion.
To bridge the gap, it relied on advance collections and delayed the processing of taxpayers’ refunds. Even then, overall tax collection growth remained below 10%, roughly half the rate required to achieve the annual target.
While provincial government employees paid Rs39 billion in income tax, a 7% decrease from the previous year, according to a breakdown of public-sector contributions, employees of the federal government paid Rs27 billion, registering an increase of 8%.
The government’s recently implemented tax on wealthy pensioners, which is applied to pensions above Rs10 million per year, generated minimal revenue, indicating that full-year revenues might not be able to reach Rs1 billion.
Meanwhile, the government last month once again allowed retired employees to draw more than one pension, a move that undermined its stated objective of pension reforms and expenditure reduction.
Tax revenues from traders remained low. Restrictions on financial transactions by ineligible individuals were among the enforcement measures that were either diluted or rolled back.
However, after higher rates for non-filers and the establishment of a new category for late filers, the real estate sector saw some increase in tax collection. Plot sales saw a two-thirds increase in withholding tax income to Rs87 billion, while plot purchases saw a 29% decline to Rs39 billion.
Overall, withholding tax collections from the real estate sector reached Rs126 billion during the first half of the fiscal year, reflecting a 17% increase.