PBC warns tax hikes could worsen Pakistan’s ‘brain drain’ crisis

The Pakistan Business Council (PBC), the largest advocacy platform for corporations in the country, has issued a stark warning regarding proposed tax hikes on salaried workers, predicting a significant exacerbation of the ‘brain drain’ phenomenon in Pakistan.

In a letter dated June 20, 2024, the PBC expressed serious concerns about the potential negative impacts stemming from the proposed budgetary measures.

According to the Pakistan Economic Survey 2023-24, there was a staggering 119% increase in the number of highly skilled individuals leaving Pakistan for employment abroad, rising from 20,865 in 2022 to 45,687 in 2023. The survey also noted increases of 26.6% and 2.28% in highly qualified and semi-skilled trades, respectively, during the same period. Conversely, there was an 8.7% rise in emigration among unskilled categories.

“The 119% surge in emigration among Pakistanis is deeply concerning,” stated the PBC.

“These emigrants include many experienced professionals of high caliber, which the formal sector cannot afford to lose. The proposed revisions to tax brackets, particularly the premature application of the 35% top rate, are poised to exacerbate this brain drain,” cautioned the PBC.

These concerns arise in the context of recent government decisions to increase tax obligations for individuals earning above Rs50,000 per month in the 2024-25 Budget. Notably, the Finance Bill 2024 indicates that the highest impact will affect those earning Rs6 million or more annually (equivalent to Rs500,000 per month), with their tax liability increasing by Rs22,500. Interestingly, even salaried persons earning up to Rs12 million annually (Rs1 million per month) face the same tax hike of Rs22,500.

Additionally, the PBC highlighted the adverse consequences for the formal sector as skilled professionals transition to the informal economy, which is not subject to taxation. The council criticized the proposal to augment tax revenues from this sector as unjust.

“While the government can print money or borrow to finance salary hikes of 20-25% for its employees, the private sector faces severe ramifications from increased brain drain as professionals seek environments with lower tax burdens, both within and outside Pakistan,” the PBC emphasized.

The council underscored that a significant number of Pakistanis are contemplating emigration due to factors such as inflation and high tax rates. “Further escalation of tax rates, especially considering that salary income is taxed grossly, represents an anomaly that requires correction,” the PBC concluded.

Monitoring Desk
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