Salaried class pays 232% more income tax than exporters, retailers combined in FY 2023-24

Pakistan’s salaried class paid a record Rs368 billion in income tax during the fiscal year 2023-24, marking a 232% increase over the combined taxes paid by exporters and retailers. 

Despite these contributions, the government and the International Monetary Fund (IMF) have further increased tax rates for salaried individuals in the new budget, effective from July.

According to Federal Board of Revenue (FBR) statistics, salaried individuals paid Rs367.8 billion in taxes in the fiscal year 2023-24, an increase of 39% or Rs104 billion compared to the previous year. 

This additional income tax was nearly equal to the combined Rs111 billion paid by the richest exporters and influential traders.

For the fiscal year 2024-25, the government has raised income tax rates for salaried persons and imposed a 10% surcharge on the highest 35% income tax bracket. 

The FBR expects to generate an additional Rs85 billion from salaried people this year, pushing their total contributions to over Rs450 billion by June next year.

During the last fiscal year, the FBR collected Rs2.66 trillion in withholding taxes, accounting for 59% of the total income tax generated. However, withholding tax collection, particularly at double rates from non-filers, has become an easy revenue source for the FBR. 

The salaried class is also subject to other withholding taxes on electricity bills, telephone, internet connections, and international transactions using credit and debit cards. 

The maximum amount of income tax was collected from contractors, saving account holders, importers, salaried individuals, and users of electricity, telephone, mobile phones, and dividend income.

Exporters and retailers paid Rs257 billion less tax than the salaried class. Exporters, who earned $30.6 billion last fiscal year, paid Rs93.5 billion in taxes, 27% higher than the previous year. 

With the end of the fixed income tax regime, exporters are now part of the normal tax regime, with the FBR expecting an additional Rs125 billion in income taxes from them this fiscal year.

Retailers contributed Rs17.3 billion in income tax at a rate of 0.5% advance tax on sales, while distributors paid Rs9.5 billion. The government has implemented a new income tax regime for retailers, excluding many traders from the tax ambit. Small retail shops in residential and commercial areas are exempt from the new scheme, which offers as low as Rs100 per month in income tax.