Pakistan’s tax debate often overlooks a simple truth: most individuals do not evade taxes – they are trapped in a confused and inconsistent system.
The Federal Board of Revenue (FBR) continues to post record collections, yet much of it comes from those already documented and deducted at source. Among them are three key groups – individuals taxed under Section 149, those under Section 153(1)(b), and a growing number caught between both. Their frustration stems from a system that punishes compliance and rewards concealment.
Take the first group – the purely salaried individual taxed under Section 149. Consider a teacher working at two A-Level schools, earning Rs700,000 from each. Both institutions deduct Rs7,500 in income tax, perfectly within the law. At the year’s end, the teacher’s total income stands at Rs1.4 million with Rs15,000 already paid. When filing the annual return, however, the total attracts a liability of Rs60,000, leaving Rs45,000 still due.
From the teacher’s viewpoint, this feels unfair; tax was already deducted twice, so why pay again? The problem is not dishonesty but disconnection. Two employers deduct separately, but the FBR assesses jointly, creating a gap the taxpayer neither expected nor understands. The FBR’s IRIS 2.0 system can already spot individuals with multiple payroll records. It should direct employers to deduct tax on aggregate income, ensuring fairness and certainty at source.
Now turn to the second category – the contractual professional taxed under Section 153(1)(b), such as visiting faculty members at universities. These educators, often with no other income, face flat withholding at source: previously 11 per cent for filers and 22 per cent for non-filers, now raised to 15 and 30 per cent under the Finance Act 2025–26. The FBR applies these rates blindly, ignoring income thresholds or exemptions.
A lecturer earning modestly from part-time teaching is taxed like a corporate contractor. Some visiting faculty at the University of Education, Lahore, challenged this in the high court and won relief after declaring that they had no other income, prompting the university to waive the tax. But this ruling remains largely unimplemented elsewhere.
The third and most complex group includes professionals earning under both Sections 149 and 153 – doctors, consultants and university employees combining salaried and contractual income. Imagine a doctor earning Rs1 million in salary (taxed Rs30,000 under 149) and Rs2 million in consultancy (taxed Rs220,000 under 153). Since the consultancy income exceeds 25 per cent of the total, the doctor is reclassified as a non-salaried taxpayer, with a total liability of Rs590,000.
The University of Punjab has recently addressed this anomaly by integrating deductions under both sections, ensuring employees have no residual liability at filing time. This model of coordination between payroll and contractual income deserves replication across all institutions.
The FBR should treat such dual-income deductions at source, particularly 153 1(b) as final and fixed taxes, rather than minimum taxes. Doing so would acknowledge the taxpayer’s compliance and remove post-filing uncertainty for professionals whose income is already fully documented.
Under the final or fixed tax regime, both income streams are treated separately, without being aggregated, thereby settling the liability at the point of deduction. In contrast, the minimum tax framework fails to accommodate this treatment, forcing aggregation of both income sources and creating additional tax liability at the time of return submission.
The FBR might also consider partial exemption or relief for individuals whose dual-source income is fully taxed at source. Such recognition would reward compliance and encourage continued honesty by easing the burden of additional ‘demanded tax’ at return time.
The injustice lies in classification. Tax reform does not always mean taxing more. Sometimes it simply means taxing right. By aligning rates, recognising multiple income sources and treating source deductions as final for documented professionals, the FBR can move from coercion to compliance.
The writer is an assistant professor at Minhaj University, Lahore.