Pakistan’s Tax Divide: Salaried Class Suffers While Elites Dodge
While Pakistan's salaried workers face surging taxes, elites in real estate and agriculture enjoy cuts, sparking calls for a fairer system.
The gap between the powerful and the working class in Pakistan is widening as the country's tax system becomes increasingly skewed. Under the first two years of its International Monetary Fund (IMF) programme, a worrying trend has emerged: salaried employees are shouldering a heavier financial burden while influential sectors—specifically retail, agriculture, and real estate—continue to contribute disproportionately little to the national treasury.
IMF Calls for Fairness Amid Growing Disparity
The severity of this imbalance was highlighted by IMF Regional Director Jihad Azour during a two-day tax conference. Azour urged Pakistan to adopt a more neutral and fairer tax structure, arguing that such a shift is essential to strengthen public trust and encourage the expansion of businesses.
“A fairer tax system can encourage compliance,” Azour stated.
The IMF director emphasised that the government must broaden the tax base, enhance revenue administration, and slash tax exemptions to protect critical public spending.
The Real Estate Slump and Agriculture Gaps
Despite the call for fairness, current data from the Federal Board of Revenue (FBR) tells a different story. The real estate sector has seen a significant drop in its contributions. In the first quarter of the current fiscal year, income tax collection from real estate plummeted by 38 per cent, falling to Rs 35.2 billion.
This decline is largely attributed to a 50 per cent reduction in income tax rates for the sector—a move that was surprisingly supported by the IMF. While real estate revenue stood at Rs 200 billion in fiscal year 2024 and peaked at Rs 236 billion last year, projections suggest it could crash below Rs 150 billion following these rate cuts.
Agriculture has also remained a low-contributor. Under the new regime introduced as part of the IMF programme, the provinces of Punjab and Sindh combined managed to collect only Rs 5.1 billion in agricultural income tax by June.
The Heavy Toll on Salaried Employees
While the elites enjoy exemptions and rate cuts, the salaried class is feeling the squeeze. The annual income tax contribution from employees has seen a massive surge, jumping from Rs 391 billion before the IMF programme began to a projected Rs 629 billion by June 2026.
Failure of the Trader Tax Scheme
The government's attempts to bring the retail sector into the tax net have also largely failed. A trader tax scheme aimed at registering one million new taxpayers has seen dismal results; by October 15, only 137 retailers had joined.
Critics point out that the scheme allows for cash transactions, which many fear will only reinforce the informal economy rather than improving official tax compliance.