In the quiet hum of offices across Pakistan – in schools, IT firms, government buildings, hospitals, and private enterprises – a quiet injustice unfolds every month. Salaried professionals, from teachers and civil servants to engineers, analysts, working in a private sector, receive their salaries with a noticeable slice already gone. That missing portion isn’t a mystery – it’s taxes. Duly paid, fully documented, and automatically deducted. And in a country where much of the economy remains in the shadows, these honest taxpayers have become the most reliable source of government revenue – and the most exploited.
During the fiscal year 2023-24, Pakistan’s salaried class contributed over Rs368 billion in income tax, according to data from the Federal Board of Revenue (FBR). That’s 232% more than the combined tax contributions of exporters and retailers ? sectors that dominate Pakistan’s marketplaces and trade corridors, yet continue to operate with limited documentation and even fewer tax obligations. The upcoming fiscal year looks no different. Projections suggest that the salaried class will pay nearly Rs500 billion in income taxes, while other sectors continue to fly under the radar.
A Tax Regime Tilted Against Transparency: At the heart of this imbalance lies a paradox: the more transparent your income, the more you pay. Pakistan’s progressive tax regime, in theory, aims to levy taxes equitably – with higher earners paying a larger percentage. Individuals earning above Rs600,000 annually are taxed in ascending brackets, peaking at a hefty 35% for those earning over Rs6 million.
But in practice, the policy reveals its flaws. The problem isn’t the principle of progressive taxation – it’s the uneven enforcement across sectors. For salaried workers, income is fully traceable and taxed at source. There are no cash-based loopholes or under-the-table arrangements. There’s little room for deductions, exemptions, or evasions.
Compare that to Pakistan’s sprawling informal economy. Retailers often operate without formal records. Landlords collect rents off the books. Agricultural incomes – though significant – remain largely untaxed. Exporters benefit from concessional tax regimes, and large swaths of the real estate and transport sectors are shrouded in regulatory gray zones. This means that while the salaried class pays what they owe – and then some – others are free to contribute as little as they can get away with.
It’s Not What They Pay – It’s What Others Don’t: The growing frustration isn’t about the amount salaried workers contribute – it’s about the inequity of the system. “The problem isn’t with how much the salaried class pays – it’s that others aren’t paying their share,” explains Dr. Kaiser Bengali, a well-known economist. “Retail, agriculture, real estate, transport, and wholesale sectors are vastly undertaxed, despite contributing significantly to GDP.”
This sentiment resonates across Pakistan’s professional middle class. They pay their dues – but in return, they see little in public services. Education, healthcare, transport, even clean drinking water – the very things taxes are supposed to fund – are increasingly privatized and out of reach. Public schools and hospitals deteriorate while private options become costlier. Inflation rises, and electricity costs soar – all while taxes are collected with surgical precision from income.
This imbalance has consequences beyond financial strain. It undermines public trust in government. When citizens see little return on their contributions, compliance becomes a burden rather than a civic duty. More importantly, it breeds resentment and deepens social divides.
The IMF’s Diagnosis – and the Government’s Inertia: The International Monetary Fund (IMF) and other global lenders have long recognized this disparity. Their recommendations to Pakistan are clear: broaden the tax base. This means moving beyond easy targets and pulling under-taxed sectors into the formal net. But despite repeated warnings, successive governments have balked at taking politically sensitive steps.
The reason? Politics. Taxing the informal economy, especially retailers, agricultural elites, and real estate players, risks upsetting powerful constituencies. These groups often hold sway over votes, influence policy, and shape public opinion. As a result, governments tend to default to the path of least resistance: squeezing the already-taxed rather than taxing the untapped.
Charting a Fairer Path Forward: Yet, the solution isn’t elusive. Three core reforms could dramatically shift the tax landscape:
1. Digitization and Documentation: Pakistan must accelerate efforts to digitize its economy. NADRA-led data integration efforts – aimed at increasing the number of income tax filers – will be a promising start. Coupling this with real-time tracking of retail transactions, property deals, and transport records could vastly improve documentation and enforcement.
2. Taxing the Untaxed: Sectors like agriculture, real estate, and wholesale/retail must no longer be immune. The government should introduce minimum turnover taxes, phase out unnecessary exemptions, and enforce withholding mechanisms in sectors where income is otherwise hard to trace.
3. Public Service Delivery: Revenue collection must be matched by visible improvements in public services. If taxpayers see better road, education, and health facilities, the social contract strengthens. If they don’t, cynicism will grow – and with it, the temptation to evade.
Toward Tax Justice: As Pakistan prepares to enter a new fiscal year, it stands at a crossroads. Continued over-reliance on its salaried class may keep the books balanced in the short term, but it risks alienating the very people who form the backbone of its economy. Tax justice, not just tax collection, must guide the next phase of fiscal reform.
If Pakistan truly aims for sustainable economic recovery, it must build a system where every sector contributes, and every taxpayer sees the benefit. Until then, the country’s most honest citizens will remain its most overburdened – carrying a nation’s hopes, and its taxes, on their weary shoulders.
