Boosting Crop Water Productivity in Sindh. Salaried class pays nearly 200% more tax than exporters, retailers. In the fiscal year that just concluded, Pakistan’s salaried class significantly outpaced exporters and retailers in income tax payments, paying nearly 200% more in taxes.
According to data from the Federal Board of Revenue (FBR). Salaried individuals contributed a substantial sum of Rs264.3 billion in taxes during the 2022-23 fiscal year. This amount, subject to tax rates of up to 35%, was over Rs75 billion or 40% higher than the preceding year. Salaried class pays nearly 200% more tax than exporters, retailers. Boosting Crop Water Productivity in Sindh Salaried Class: Significant Withholding Tax Contributors
The salaried class ranked as the fourth-largest group of withholding tax contributors, following contractors, bank depositors, and importers, although the FBR has not officially released these figures.
Government Measures Impacting the Salaried Class
The government’s decision to increase taxes on the salaried class in the previous budget. Coupled with the record-high inflation, led to higher tax collections from this group. The recent budget further raised taxes on individuals earning more than Rs200,000 a month, while also providing relaxation in registration conditions for approximately 5,000 retailers.
Dominant Force in Revenue Generation
In the previous fiscal year, the FBR collected over Rs2 trillion in withholding taxes, constituting 61% of the total income tax generated in the previous fiscal year. However, it appears that the withholding tax collection, especially at double rates from non-filers, has become a convenient source of revenue for the FBR. Salaried class pays nearly 200% more tax than exporters, retailers
Debate Over Tax Collection Strategies
Critics argue that focusing on extracting more from existing taxpayers while permitting the informal sector to expand is counterproductive and detrimental to the overall economy.
Details from the FBR reveal that contractors, savings account holders, importers, salaried individuals, electricity bill payments from non-filers, telephone and mobile phone users, and dividend income were the main sources of income tax. Other significant contributors included taxes on property transactions, exports, foreign income fees, brokerage commissions, and vehicle registrations. Boosting Crop Water Productivity in Sindh
Exporters and Retailers: Disparities in Tax Payments
In contrast, exporters and retailers together paid Rs175 billion less in taxes than the salaried class, based on provisional figures. The combined income tax payment of exporters and retailers was Rs89.5 billion in the last fiscal year, which was 196% less than the tax paid by salaried individuals.
Exporter Tax Contributions: A Comparative Analysis
Exporters, who earned $27.7 billion in the previous fiscal year, paid a minimal sum of Rs74 billion in taxes. While their tax contributions increased by 17.4% compared to the previous year, it did not align with the increase in their income in rupee terms. Exporters pay only 1% of their gross receipts in income tax, although they claim their effective rate is similar to the maximum rate of 35% for salaried individuals. This stark difference raises questions about the equity of the taxation system.
Similarly, retailers contributed a mere Rs15.6 billion through a 0.5% advance tax on sales, making it one of the smallest contributions by any income group. Retailers and wholesalers represent about 19% of the economy, but their share in total income tax amounts to a mere 0.4%.
Moreover, the International Monetary Fund (IMF) is seen as unfairly burdening the salaried class, which lacks a strong representation in influential circles, unlike exporters and retailers.
In the last fiscal year, tax collection from contractors and service providers increased by 3% to reach Rs391 billion, making it the largest source of income tax collection, despite the FBR having no role in this sector.
Income from profit on debt increased by 106% to reach Rs320 billion, indicating the impact of higher interest rates and people’s inclination to save. Banks deduct income tax rates of 10% to 50% on savings accounts on behalf of the FBR.
Importers contributed Rs290 billion in income tax on various types of imports, making them the third-largest contributors to withholding taxes.
Author: Ace Bureaucrat Academy
