Taxation is a fundamental component of any country’s economy. It fuels public services, infrastructure projects, and social welfare systems, all of which contribute to a nation’s growth and development. In Pakistan, the salaried class has long been one of the primary contributors to the country’s tax revenue. Over the past three years, salaried individuals have shouldered a significant portion of the tax burden, contributing to the state’s finances. However, understanding the full extent of the taxes they’ve paid requires an in-depth look at the figures, the tax policies, and how the system has evolved.

The Evolution of Tax Policy for Salaried Individuals

The tax system for salaried individuals in Pakistan is governed by the Federal Board of Revenue (FBR), which sets tax slabs based on income. Over the past few years, Pakistan has undergone several changes in its tax policy, with varying degrees of impact on salaried employees. The government’s objectives are typically twofold: to increase revenue generation and to ensure a fairer distribution of the tax burden.

In the past three years, there have been attempts to introduce reforms aimed at improving tax compliance, expanding the tax net, and addressing the concerns of the salaried class. These reforms have included the introduction of new tax slabs, adjustments in the rates, and, in some cases, the imposition of additional taxes, such as withholding taxes on certain types of income.

For salaried individuals, tax obligations are generally deducted at source by their employers, making the system relatively straightforward. However, as inflation has risen and the cost of living has increased, the burden of these taxes has been felt more acutely by many in the salaried class.

How Much Tax Have Salaried Individuals Paid?

Over the past three years, salaried individuals have contributed a substantial amount in taxes. The amount paid varies significantly depending on the income level, with higher earners contributing more in absolute terms. According to the Federal Board of Revenue (FBR) reports, the total tax collected from salaried individuals over the last three years has shown an increasing trend.

In the fiscal year 2021-2022, the total tax revenue from salaried individuals stood at approximately PKR 150 billion. The following year, the figure rose to around PKR 180 billion, reflecting a slight increase due to adjustments in tax slabs and the impact of inflation. For the fiscal year 2023-2024, the total tax collected from salaried individuals is expected to exceed PKR 200 billion, as the government continued to tweak tax policies and introduce measures to enhance compliance.

These figures suggest that the salaried class has become a more significant contributor to national revenue in recent years, despite challenges such as economic instability, inflation, and rising living costs.

Impact of Tax Reforms on Salaried Individuals

Over the last three years, the government has introduced various tax reforms, some of which have directly impacted salaried individuals. One of the key reforms was the adjustment of income tax slabs, aimed at providing relief to low and middle-income earners. For instance, the government increased the income threshold for the lowest tax brackets, meaning that individuals with lower incomes would pay less tax. However, higher-income earners continued to be taxed at a higher rate, ensuring that the tax system remained progressive.

Additionally, the government introduced measures to increase tax compliance, such as digitizing tax filing processes and encouraging salaried individuals to file their tax returns. These reforms have helped to expand the tax base, ensuring that more salaried employees contribute their fair share. However, while these measures have proven successful in some cases, challenges such as tax evasion and lack of awareness about tax laws persist.

Salaried Class and Withholding Taxes

Another noteworthy trend in the past three years has been the increased focus on withholding taxes. These taxes are automatically deducted from an individual’s salary at the source and are typically a smaller percentage of the total income. However, the accumulation of these withholding taxes over time can amount to a significant sum.

For salaried individuals, withholding taxes have become a prominent aspect of their tax obligations. In addition to regular income tax deductions, employees are also subject to withholding taxes on services they avail, such as medical services or professional services, which add to their overall tax burden. While these measures help improve tax collection efficiency, they have also placed additional financial strain on salaried individuals, especially those with mid-range incomes.

Why Salaried People Are Paying More

One of the key reasons salaried individuals are paying more in taxes over the past three years is inflation. As the cost of living rises, so do wages. Higher wages, however, also lead to higher tax liabilities because the tax system in Pakistan is progressive. The more you earn, the higher the percentage of your income that is taxed.

Moreover, Pakistan’s growing need for fiscal consolidation, especially in light of international financial pressures and domestic economic challenges, has led to the introduction of tax reforms that place a higher burden on the salaried class. The government’s need to generate revenue for infrastructure projects, defense, education, and healthcare often translates into higher taxes for the working class.

Challenges Faced by the Salaried Class

Despite these efforts, many salaried individuals have expressed concerns about the increasing tax burden. The cost of living in major cities like Karachi, Lahore, and Islamabad continues to rise, and while salaries have also increased, they often don’t keep pace with inflation. As a result, many salaried individuals find themselves in a difficult position where a larger portion of their income goes towards taxes, leaving them with less disposable income for daily expenses.

Moreover, many salaried individuals struggle with the complexity of the tax system. Although tax filing has become more digital, there is still a significant knowledge gap when it comes to understanding deductions, exemptions, and the filing process.

Conclusion

The past three years have seen a significant increase in the amount of tax paid by salaried individuals in Pakistan. With tax reforms aimed at enhancing compliance and expanding the tax net, salaried people have become more central to the country’s tax structure. However, despite the reforms, challenges such as inflation, rising costs of living, and the complexities of the tax system remain. As Pakistan continues to address its fiscal challenges, it will be important to strike a balance between increasing tax revenue and alleviating the burden on the salaried class. Only by doing so can the country ensure sustainable economic growth and development.

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