Pakistan's salaried class: Overburdened, underpaid, and neglected

Writing for The Express Tribune, author Syed Ali Sajjad highlights that the salaried class is an integral part of a growing economy, contributing to its progress through their hard work and daily routine. 

However, in Pakistan, this group seems to lack proper representation, as their concerns are often ignored. Unlike traders and exporters, who have their voices heard and receive concessions, the salaried class, as direct taxpayers, are left without a voice.

The tax-to-GDP ratio in Pakistan is currently at 4-5%, which is relatively low. Even with an optimistic assumption that only half of the economy is undocumented, the GDP is still understated by 50%, leading to a lower tax ratio of almost 2-2.5% in reality. As a result, the average Pakistani only pays 2-2.5% of their income in total taxes, including direct and indirect taxes.

However, the salaried class is treated very differently. They are subjected to a high tax bracket that can go up to 35%, while indirect taxes such as GST and petroleum levy add to the burden. Mid-level career professionals in Pakistan typically fall within the tax bracket of 25-30%, leaving them paying almost 50% of their salary as taxes. This is in stark contrast to the average Pakistani, who pays only 2.5% in total taxes.

Furthermore, the plight of the salaried class becomes even more pressing during inflationary periods. Businesses usually transfer the maximum possible impact onto consumers through price hikes. The extent to which they can do so depends on the price elasticity of demand for their product. Inflationary pressure is borne mostly by customers for products with perfectly inelastic demand, whereas the pressure is shared between consumers and producers for products with relatively elastic demand through higher prices.

Unfortunately, the salaried class has no recourse during inflationary periods. They are often left with meager salary increases, and if the inflation triggers a recession, business owners may resort to layoffs as the easiest and quickest way to cut costs, leaving the salaried class to bear the brunt once again.

The situation in Pakistan is unsustainable. Forward-thinking countries understand the undeniable importance of salaried individuals in a growing economy. For example, in the United Arab Emirates (UAE), the salary multiple for a professional with similar credentials to their Pakistani counterpart is currently five to six times higher. As a result, many individuals are leaving Pakistan and flocking to the Gulf for better opportunities.

The UAE government has also incentivized freelancers to operate from Dubai by offering them golden visas. They understand that human resources are the most valuable resource in modern times. Iconic companies such as Google and Facebook are the result of unleashed potential from talented individuals, not the extraction of oil, mining of diamonds, or manufacturing of steel. Therefore, these companies are willing to offer extremely attractive salaries to these talented professionals.

In contrast, the salaried class in Pakistan is taxed much more than others and paid much less, making it virtually impossible for them to afford a house and own a decent car. It is becoming increasingly challenging for them to make ends meet. Due to these factors, talented professionals are leaving the country and seeking opportunities elsewhere. If these flights continue to leave, the loss could become irreversible.

Policymakers in Pakistan must take action to retain these hardworking, law-abiding citizens who contribute significantly to the country's economy by paying taxes. They play a crucial role in maintaining the social fabric of the nation, and the success of many corporations is due in large part to their skills and knowledge. Ignoring their concerns and misconstruing their silence as an inability to retaliate could have severe consequences for society as a whole. The country risks losing loyal and reliable taxpayers, leaving businesses struggling to find skilled labor and managers. This loss would be the true 'gloom and doom'.

To read the full article visit www.tribune.com.pk