Despite shouldering a record tax burden, Pakistan’s salaried class contributed Rs555 billion in income tax during the fiscal year 2024–25, yet the Federal Board of Revenue (FBR) still fell short of its annual target by Rs1.2 trillion, according to provisional figures.
This contribution marks a 51% increase—or Rs188 billion more—compared to the previous year’s Rs367 billion, and is double the combined taxes paid by the entire retail and real estate sectors. However, this sharp rise comes at a cost: a significant reduction in take-home pay for millions of fixed-income earners who, unlike other sectors, are taxed at source and denied the flexibility to claim expense adjustments.
The increase in tax obligations was a direct result of policy changes introduced by the Shehbaz Sharif government, which had initially projected only Rs75 billion in additional revenue from this segment. The final figure has far surpassed that estimate, revealing the disproportionate burden placed on salaried individuals.
While the government recently offered some relief by reducing taxes for individuals earning up to Rs3.2 million annually—expected to return Rs56 billion in benefits—analysts note this is merely a symbolic concession in light of the Rs555 billion extracted from this class.
Sector-Wise Breakdown
- Non-corporate employees contributed Rs236.5 billion (up 40%)
- Corporate sector employees paid Rs165 billion (up 49%)
- Provincial government employees contributed Rs99.5 billion (up 98%)
- Federal government employees paid Rs54.2 billion (up 45%)
In total, salaried taxpayers contributed roughly 10% of all national income tax collections, which amounted to Rs5.8 trillion during the fiscal year.
Retailers and Real Estate Lag Behind
In stark contrast, retailers contributed only Rs38 billion in withholding tax via purchases—a figure that is over 13 times less than what salaried individuals paid. This tax was collected under Section 236-H, mainly from unregistered businesses.
Wholesalers and distributors added just Rs25 billion, with a significant portion of them not even registered with the FBR.
Despite promises to expand the tax net—particularly through the now-defunct Tajir Dost Scheme—retailers have largely remained outside the formal system. Enforcement measures such as the ban on economic transactions by ineligible persons have lost effectiveness, as exemptions were granted for:
- Car purchases up to Rs7 million
- Plot acquisitions up to Rs50 million
- Commercial property deals up to Rs100 million
The government’s 2.5% withholding tax on traders generated an additional Rs21 billion, but failed to bring meaningful compliance. Instead, most traders simply passed the cost on to consumers.
Real Estate: Modest Gains, Missed Potential
The real estate sector contributed Rs237 billion in FY25, a 19% increase year-on-year, but still lagging behind potential. Withholding tax collections included:
- Rs119 billion on property sales (up 25%)
- Rs118 billion on plot purchases (up 14%)
Although the budget introduced tougher tax rates for non-filers and late filers, it also abolished federal excise duty on real estate transactions. The overall tax burden has now shifted more toward property sellers through increased withholding rates.
A Tale of Inequity
This year’s figures highlight a troubling imbalance in Pakistan’s tax policy: a disproportionate reliance on salaried individuals, while traditionally under-taxed sectors continue to avoid meaningful contributions. The result is growing fiscal pressure on a class with limited political influence and minimal avenues for relief.
With the FBR missing its revenue target by a wide margin, experts warn that without genuine structural reforms to broaden the tax base—particularly by bringing retailers and the real estate sector into compliance—Pakistan risks deepening its already fragile fiscal imbalance.
