You ViewsVOLUME 18 ISSUE # 41

Misleading income tax

The term ‘income tax’ is pretty misleading in Pakistan and requires a more accurate representation. How about calling it the ‘salary tax’? This will make the title consistent with what is being taxed.

Successive governments have never tried to tax the income. All they have done is to tax the salaries. So, there is every reason to call it what it is. The consistent targeting of the salaried class as an easy revenue source by policymakers is as unjust as it is nauseating. Seriously frustrating, it is. Startling statistics were presented by a government functionary a little while ago, illustrating the low tax registration and compliance rates in the country. The data presented was clearly an eye-opener.

Out of 250 million citizens, only three per cent are registered with the Federal Board of Revenue (FBR), and a significant proportion from among them fails to submit the obligatory tax returns, leaving just 1.6pc of individuals who dutifully file their income tax returns, with a mere 0.88pc contributing to income tax payments. Further accentuating the staggering disparity is the fact that an astonishing 90pc of the total income tax revenue comes from only 0.127pc of the population. ‘Unjust’ is too small a word to describe such disparity.

Policymakers seem hesitant to broaden the tax net even though fiscal stability can only be attained when every segment of society pays tax according to income, completely regardless of the source of that income. As things stand right now, tax on agriculture-related income is a matter we have not even started discussing in parliamentary circles. Retailers, on their part, pay a meagre 0.25pc of their net income, and threaten to shut down shop in case they are ‘forced’ to pay any additional amount.

In contrast, the salaried class is taxed on a higher slab, and, more critically, taxed on the basis of gross income. The current take-home salaries have actually returned to 2019 levels, and, even more worryingly, the purchasing power has reverted to the level of 2011 owing to the lethal mix of higher taxes and even higher inflation. To achieve a fair and sustainable tax system, it is crucial for the country’s policymakers to address these issues, and pursue comprehensive reforms that may ensure equity and shared responsibility.

Revisiting tax policies and enhancing tax literacy are crucial steps towards fostering a fairer and more balanced tax system in the country. And, till all this gets done, if ever, let us better call it a ‘salary tax’. That at least sounds cathartic. Ask any salaried person, and he would tell you this much.

Professor Altaf Mukati