Possible Tax Relief for Salaried Individuals in the Next Budget

Introduction

Pakistan's federal government is considering decreasing the tax burden on salaried persons in the coming year's budget. This decision comes after a sharp rise in income tax collections from salaried employees. In the first seven months of the current fiscal year, income tax contributions from this sector reached PKR 285 billion. This is PKR 100 billion more than the same period last year.

Background

State Minister for Finance Ali Pervaiz Malik recently spoke at a seminar on business reforms. He admitted that salaried individuals are paying more taxes than they can afford. He also explained that despite Prime Minister Shehbaz Sharif’s concerns, the government had to impose an extra PKR 75 billion tax burden on salaried individuals last year due to pressure from the International Monetary Fund (IMF). However, the revenue collected from this group has already exceeded this amount, with five months still left in the fiscal year.

Breakdown of Tax Contributions

The tax collection figures show a major increase in contributions from different employment sectors:

Non-corporate sector employees paid PKR 122 billion, a 41% increase from last year.

Corporate sector employees contributed PKR 86 billion, showing a 50% rise.

Provincial government employees paid PKR 48 billion, nearly double compared to last year.

Federal government employees paid PKR 29 billion, marking a 63% increase.

These numbers show that salaried individuals, whether in the private or public sector, have faced a considerable increase in their tax contributions.

Unequal Tax Burden

Despite the high tax burden on salaried individuals, many other sectors continue to evade taxes. Wholesalers and traders, for example, still manage to avoid direct taxation. Instead of properly enforcing tax collection from them, the authorities depend on at-source deductions from unregistered traders to gauge tax compliance. This means that salaried individuals carry a larger share of the country’s tax revenue while others contribute little.

Government’s Consideration for Relief

The government is now looking into options for tax relief for salaried individuals. Officials have admitted that the present tax rates for salaried employees are inequitable and that changes are needed. However, the actual execution of this relief is doubtful. With economic obstacles and IMF constraints remaining in place, the administration may have difficulty decreasing taxes while fulfilling revenue estimations. 


 

Potential Benefits of Tax Relief

If the government follows through with tax relief, it could have several positive effects:

Increased Disposable Income: Lower taxes would allow salaried workers to earn more. It will enhance their financial security.

Higher Consumer Spending: With more significant disposable income, consumers can spend more on products and services. Which will help the economy with time.

Improved Work Productivity: Financially secure employees are more driven and productive.

Better Investment Opportunities: With more considerable savings, people may invest in enterprises, real estate, or other financial assets. It will be helping to drive economic growth.

Challenges in Implementing Tax Relief

While tax relief sounds promising, there are several challenges:
 

Conclusion

The dialogue about reducing the tax burden on salaried workers is a great move. It shows that the government realizes the problem and is looking for solutions. However, whether these adjustments will be established in the available budget is unclear. If the government follows through, it may bring critical financial relief to paid employees and stimulate economic development. However, difficulties such as income gaps and IMF constraints must be appropriately addressed to achieve a balanced approach.

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