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Unfair Taxation

The increased tax rates for salaried class, non-corporates, and exporters, shifting from a 1% fixed tax on turnover to a normal tax regime with rates rising from 29% to 40% on profits, are highly unfair and counterproductive.

By Asif Javed | August 2024

Unfair Taxation
The incumbent government presented the federal budget for the financial year 2024-25 with a volume of Rs. 18.877 trillion ($67.76 billion). The budget set a revenue target of Rs. 13 trillion ($46.66 billion). The key features of the FY 2024-25 budget included setting the GDP growth target at 3.6% for fiscal year 2024-25. The government is committed to lowering inflation to 12% in FY 2024-25. The current budget is critical in Pakistan’s negotiation with the International Monetary Fund (IMF) to secure the next grant.

The current revenue target is around 40% higher than the previous fiscal year, based on which the business community and other stakeholders have severe concerns about its implications for the economy as a whole. The increase in tax target is made up of a 48% rise in direct taxes and a 35% increase in indirect taxes. Besides, there will be a hike in non-tax revenues, including a sharp rise in petroleum levies. The government expects to collect around Rs. 869 billion from fuel levy in the current fiscal year.

Taxes will affect salaried and low-income workers more, and high inflationary pressure will further reduce purchasing power. During the last five years, the real income of salaried persons has decreased by more than 30%. An increase in tax incidence has affected the disposable income of the middle-income group considerably, which has negative implications for this segment.

One feature of income tax is wealth distribution and contribution to economic growth. The salaried class is the most prominent group contributing to tax revenues through income tax. However, salaried persons feel more economic pressure as the tax burden increases continuously.

Although the salary exemption limit has been unchanged at Rs. 50,000 per month for the past three years, the government has taken measures to change taxable income above this threshold, which will directly affect salaried persons. The government is expected to generate an additional Rs. 75 billion from this measure. If we look at regional examples, India has simplified tax filing procedure, which benefits individuals with lower incomes and fewer investments but limited deductions.

The tax rate for salaried persons earning between Rs. 50,000 to Rs. 100,000 per month has been doubled through the Finance Bill 2024. This translates into a tax rate rise from 2.5% to 5% on all income earned above Rs. 50,000 in this bracket. Instead of providing any relief to salaried persons and low-income households, the government has increased a salaried person’s effective income tax rate to 39%, for the association of persons to 44%, and the non-salaried person to 50% compared to the previous fiscal year.


The business community, especially the SME sector, has raised serious concerns about the budget, stating that imposing excessive taxes and measures will severely affect the country’s economic activities. The tax burden may lead to the closure of many businesses and industries, which will only slow economic growth, causing further burden on the government exchequer. The imposition of an 18% sales tax on textile, leather products, and mobile phones will affect the growth of these sectors and other related businesses.

The increase in withholding taxes from 1% to 2.5% on the manufacturer-distributor-retailer value chain will not produce the desired results of pushing non-filers towards filers. However, manufacturers will likely transfer this burden to consumers, increasing inflation even more. In this scenario, the size of the informal cash market will escalate, considering the incentive to avoid the formal tax structure.

The increased tax rates for salaried class, non-corporates, and exporters, shifting from a 1% fixed tax on turnover to a normal tax regime with rates rising from 29% to 40% on profits, are also extremely unfair and counterproductive.

Businesses lamented that the continuous change in tax structure makes it difficult for them to plan accordingly. On the other hand, Bangladesh has decided not to change individual and corporate taxes for the next two years, which will provide predictability to taxpayers. This will facilitate the expansion of trade, enhance confidence in the tax system, and increase local and foreign investment in Bangladesh. Pakistan should also follow the same practice to stabilize the economy and ensure taxpayers have no additional tax deductions for the next few years.

The budget has no coherent measures regarding retail, agriculture, and real estate tax collections. The government can take steps to tax all incomes, irrespective of the source, which will help bring all sectors into the tax net and ease the burden on existing taxpayers and businesses that are paying higher taxes.

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