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Express Tribune
10-06-2025
- Business
- Express Tribune
Budget 2025-26: Govt provides income tax relief for salaried class
Listen to article The government has taken a significant step to provide substantial relief to lower and middle-income sectors, proposing up to a four per cent decrease in income tax across various slabs. Presenting the federal budget for the fiscal year 2025-26, Finance Minister Muhammad Aurangzeb stated that the prime minister had consistently endeavoured to lower taxes on salaried individuals. "Keeping this objective in mind, we have proposed a decrease in income tax across all slabs," he said. "This measure will not only ease the existing tax structure but also strike a crucial balance between inflationary pressures and individuals' take-home pay by alleviating the tax burden." Under the new budget, individuals earning between Rs0.6 million (Rs50,000 monthly) and Rs1.2 million per annum (Rs100,000 monthly) are set to receive significant tax relief, as the government has lowered their tax rate from five per cent to one per cent. For those earning up to Rs100,000 per month, the federal budget also proposes a reduction in the total tax amount from Rs30,000 to Rs6,000. Similarly, individuals earning up to Rs2.2 million per annum will see a four per cent decrease in tax on their salaries, bringing the rate down from 15 per cent to 11 per cent. Some relief has also been extended to the higher income bracket. Individuals earning up to Rs3.2 million will benefit from a two per cent cut, reducing their tax rate from 25 per cent to 23 per cent for the upcoming fiscal year. Meanwhile, in a move to mitigate the brain drain phenomenon, which sees professional human resources facing the highest tax burden in the region, the government has proposed a one per cent decrease in the surcharge applied to individuals earning more than Rs10 million per annum. Earlier, it was revealed that the salaried class paid a staggering Rs331 billion in income tax in the eight months of the current fiscal, which is 1,350% more than the taxes paid by retailers, but still not enough for the government to seek relief from the International Monetary Fund (IMF) for the marginalised segment. The total income tax contributions by the salaried people during the July–February period of this fiscal year were Rs120 billion, or 56% higher than the Rs211 billion collected during the same period of the last fiscal year. Last year, the salaried class paid Rs368 billion in taxes. But despite this backbreaking burden on the salaried people, who pay taxes on their gross income without adjusting expenditures, the government did not take up the issue of lessening this burden with the IMF during the recently held talks.
Business Recorder
10-06-2025
- Business
- Business Recorder
Missed Opportunity: OICCI slams Budget FY26 for ignoring informal economy
The Overseas Investors Chamber of Commerce and Industry (OICCI), representing over 200 of the largest foreign investors in Pakistan, has expressed disappointment over the government's limited progress in addressing the 'inequitable corporate tax rate' in the recent budget. 'While the marginal reduction in Super Tax rates is acknowledged, OICCI reiterates the urgent need for a comprehensive overhaul of tax structures to enhance Pakistan's competitiveness and attract foreign investment,' the chamber said in a statement on Tuesday. Finance Minister Muhammad Aurangzeb announced Pakistan's federal budget 2025-26 'for a competitive economy' on Tuesday, targeting a modest 4.2% growth for the coming fiscal year, compared to 2.7% expected in the outgoing FY25. OICCI's budget proposals — balancing reform with reality The chamber also noted the 'absence of meaningful reductions' in government expenditure, which could have helped narrow the budget deficit. The chamber urged the government to prioritise expenditure rationalisation in its budgetary measures. 'OICCI regrets the government's missed opportunity to broaden the tax base in the current budget, particularly the absence of any concrete strategy to document Pakistan's substantial Rs9 trillion cash-based informal economy - a critical measure for meaningful revenue enhancement and economic formalisation that the chamber has consistently advocated for,' it added. On the other hand, OICCI acknowledged positive reforms, including simplified tax returns for salaried individuals and small businesses, the nationwide rollout of e-invoicing, and the expansion of POS systems. 'However, their success hinges on effective implementation, and OICCI stresses the need for transparency and consistency in execution,' it said. OICCI said that the increase in the tax exemption threshold for salaried individuals, from Rs0.6 million to Rs1.2 million, and the reduction in their tax rate, from 5% to 1%, 'are commendable steps that align with OICCI's recommendations but still fall short of providing impactful and necessary relief to reduce ongoing brain drain in the country'. The chamber noted that the government's gradual phasing out of tax exemption on FATA and PATA and the government's stricter measures against non-compliant taxpayers, including restrictions on property and vehicle purchases, asset transfers abroad, and enhanced penalties, are crucial for improving tax compliance and broadening the revenue base. 'Despite these advancements, the budget falls short of introducing transformative policies for the corporate sector,' it said. OICCI emphasised that gradually rationalising tax slabs and reducing the overall tax burden on businesses are essential to promoting a more investment-friendly environment.
Business Recorder
10-05-2025
- Business
- Business Recorder
Federal budget 2025-26: Cut in taxation rates for salaried people likely
ISLAMABAD: The revenue impact of the taxation measures to be taken in the coming budget 2025-26 would be neutralised through tax relief measures including at least 2.5 percent reduction in income tax slabs for salaried individuals and reduction in withholding tax rates and corporate income tax rate. Sources told Business Recorder here on Friday that if the government proposes taxation measures of Rs500-600 billion, the net impact of the revenue measures should be minimised through tax relief measures. The government will try to cover the revenue impact of the taxation measures with the relief measures in the coming budget. Ministry seeks Rs1.6trn PSDP: FY26 budget on June 2 However, the government is also exploring other avenues to overcome shortfall as a result of relief to salaried class etc. 'If revenue measures are with the tax relief measures, there might be zero net revenue impact of overall measures for next fiscal year,' the official quoted an example. Sources said that the revenue collection from the salaried class is much high as compared to projected revenue during the outgoing fiscal year. Therefore, the government is committed to reduce tax by 2.5 percent in each higher slab of salaried individuals. In this regard, working is underway. Another proposal is to reduce corporate tax rate as well as 'Super Tax' in the upcoming budget. The proposal is to raise the income tax exemption threshold from Rs0.6 million up to Rs1 million under the Income Tax Ordinance, 2001. This is a relief measure for the general public to considerably enhance exemption threshold of income tax, the sources added. Copyright Business Recorder, 2025
Business Recorder
05-05-2025
- Business
- Business Recorder
Pension, tax relief thresholds: FBR working on two major budget proposals
ISLAMABAD: The Federal Board of Revenue (FBR) is working on two major budget proposals including taxation of pension above certain high threshold and increase in existing income tax exemption threshold from next fiscal year (2025-26). Sources told Business Recorder that both the proposals would be submitted before the prime minister for approval. However, working on these proposals has been started in the FBR. The first proposal is to impose some nominal tax on pensions where very high amount is paid under the head of 'pensions'. Initially, this may cover Grade-22 retired officials and others in same category. Respite only for salaried individuals as FY26 budget to be 'tough' without GST relief: FBR chief For instance, if a retired person is getting pension of or above Rs0.4 million per month or Rs4.8 million per annum, it may be subjected to some nominal tax on pension. A tax rate of 2.5 percent can be considered for taxation of pension on a monthly basis. There are cases people are enjoying luxurious lifestyle along with drawing high amount of monthly pension. The proposal has been drafted only for persons receiving very high pension amount, but not to be applicable for pensioners receiving lower amounts of pensions. A former FBR Member Tax Policy told this scribe that it would be a political decision whether the government is ready to taxpensions above certain high threshold. This may cover retired judiciary, bureaucrats and senior retired armed forces officials, he added. The second proposal is to raise the income tax exemption threshold of Rs0.6 million under the Income Tax Ordinance, 2001. This is a relief measure for the general public to considerably enhance exemption threshold of income tax, the sources added. Copyright Business Recorder, 2025
Express Tribune
27-04-2025
- Business
- Express Tribune
Reforming taxation for salaried class
Talking to members of the All Pakistan Textile Mills Association (Aptma) on Monday, the ombudsman said that tax revenue collection could be increased 'only through a fair, just, easy and efficient tax system'. PHOTO: FILE Listen to article The tax system in Pakistan is constitutionally required to be fair, just and equitable. However, a review of the current system reveals a concerning trend: those who are tax compliant are increasingly burdened, while those who avoid the tax net, often by conducting transactions outside the banking system, face little to no consequences. The salaried class exemplifies this disparity. Despite being among the most tax-compliant segments, regularly filing returns and having taxes withheld at source by employers, they frequently face increased tax rates and the erosion or elimination of available tax benefits. This unjust treatment is often justified by the government's inability to collect adequate revenue from other sectors due to weak enforcement or political constraints. As a result, the salaried class becomes the default target for higher taxation. While this may offer short-term relief in revenue collection, it undermines long-term objectives and fuels a culture that incentivises staying outside the tax net. With the federal budget due within a month, this is an opportune moment to advocate for reforms that support the salaried class, drawing inspiration from international best practices. It's worth noting that the government has projected a 55% increase in revenue collection from the salaried class for the current fiscal year compared to the previous year's collection of Rs368 billion. This increased reliance on the salaried segment will make it more challenging to introduce equitable and supportive tax measures. However, these challenges can be overcome with political will, sound policy design and robust enforcement. It is concerning that tax laws are often amended under pressure from external lenders, yet domestic reforms that promote fairness across all income groups are rarely prioritised. First and foremost, the tax rates applicable to the salaried class must be revisited. The current tax-free threshold should be raised from Rs0.6 million to Rs1.2 million per annum. Moreover, Pakistan rarely indexes its tax brackets to inflation, a globally accepted practice that prevents fiscal drag or bracket creep. Indexing ensures that rising nominal incomes due to inflation do not result in higher effective tax burdens, especially for low and middle-income earners. Far too often, modest salary increments are negated by disproportionate increases in tax liabilities. Another issue that lies with tax rates of salaried class includes that if a person's annual salary exceeds Rs4.1 million, a flat 35% tax rate applies, down from a previous threshold of Rs6 million, creating a steep cliff effect. There is a clear need to introduce additional tax slabs to avoid such abrupt increases. Additionally, inconsistencies between income slabs also merit attention. A salary increase from Rs2.2 million to Rs3.2 million results in a marginal tax rate hike of 5.26%, whereas an increase from Rs3.2 million to Rs4.1 million leads to a lesser rise of 3.64%. Such disparities disproportionately impact middle-income earners and highlight the need for comprehensive slab rationalisation. Unfortunately, Pakistan tends to emulate other countries' tax rate structures without adopting the corresponding tax benefits those countries offer. A recent example is the additional surcharge introduced via the Finance Act 2024, under Section 4AB of the Income Tax Ordinance 2001 (the Ordinance), applicable where the taxable income exceeds Rs10 million. This surcharge is levied even on individuals, including salaried persons and associations of persons (AOPs), and must be reconsidered or withdrawn. A holistic view reveals that the effective tax rate on salaried individuals often exceeds that paid by small business owners, especially those operating informally or under the minimum tax regime based on turnover. Salaried taxpayers are not allowed to deduct any personal expenses from their income. A standard deduction, offered in many countries, including India, should be introduced. India currently allows a standard deduction of INR 50,000 under the old tax regime and INR 75,000 under the new regime. Pakistan could implement a similar deduction without requiring any supporting evidence to cover the basic costs of employment, such as transportation and meals. This deduction could vary depending on the taxpayer's circumstances, with higher deductions for senior citizens, disabled persons, teachers, etc. Lawmakers in Pakistan could also consider introducing dual tax regimes for salaried individuals. One regime could offer lower tax rates but limit deductions to a standard deduction and a few basic tax credits. The other could allow a broader range of deductions and credits in exchange for slightly higher rates. Taxpayers should be given the option to choose the regime that suits them best. Other commonly available deductions internationally for salaried class include those for house rent, mortgage interest, life and health insurance premiums and expenses related to supporting dependents with disabilities or chronic illnesses. These costs significantly reduce their disposable income and should be deductible under a fair tax system. Pakistan currently allows a limited deduction for children's education expenses, but thresholds are too low to be meaningful. These limits should be substantially increased and eligibility should be extended to include the taxpayer's own education and that of other dependents. Additional incentives could include offering tax credits or benefits to salaried individuals who consistently file their returns on time. The ordinance contains multiple penalties for non-compliance, but very few rewards for voluntary and timely compliance. A simple tax credit could be granted in the next fiscal year for taxpayers who filed on time during the preceding year. Since most salaried tax is collected through withholding, this measure would not significantly impact revenue but would encourage compliance. Furthermore, the government could exempt compliant salaried individuals from audits and assessments, except in high-net-worth cases or where specific risk factors are identified. The language of Section 149 of the ordinance should be clarified to clearly outline which claims are permissible when tax is withheld by an employer. In cases where a salaried person receives refund in a prior year, the refund should either be allowed under Section 149 of the ordinance or processed automatically through a streamlined verification mechanism. Many additional reforms could help make the taxation of salaried individuals more just, efficient and supportive of broader economic goals. This segment is among the most documented and compliant in the country, yet it continues to bear a disproportionate tax burden due to weak enforcement in other parts of the economy. It is time to prioritise fairness and equity in tax system not just in principle, but in practice. The writer is a member of the Institute of Chartered Accountants of Pakistan
