The tax collection figures for the outgoing fiscal year (FY2024-25) would be comical if not so utterly tragic too. According to reports, the salaried classes paid a historic Rs545 billion in income tax in the previous fiscal year, which ended on June 30. This makes them the highest contributor among all sectors on account of direct taxes. Their contribution was more than three times that of exporters, who earn in dollars, and more than eight times that of retailers. Exporters paid out Rs180 billion in the last fiscal year while retailers, among the most cash rich and politically connected people in the country, paid a mere Rs62 billion. So, even if we combine the contribution of exporters and retailers, the contribution of the salaried to national revenues is still more than twice as high. And this is before we even look at indirect taxes like the GST, petrol levy and gas and power tariffs. This makes a total mockery of the government’s aim of expanding the tax net. Instead, what we have is those who have long been inside the net simply paying more and continuing to carry a disproportionate burden. The Rs545 billion paid in income tax for the outgoing fiscal is Rs178 billion higher than what was paid in FY2023-24.
This is not what expanding the tax net is supposed to look like. However, this is not entirely due to a lack of effort. Both carrots and sticks have been tried. The Tajir Dost Scheme, launched during the outgoing fiscal with the specific purpose of bringing retailers into the tax net failed to achieve its goals. When it comes to sticks, the punitive measures we heard of last year, including restricting purchases of cars and property, for those who remained outside the net seemed to have only made an impression on the salaried. While the tax authorities have promised that enforcement measures will yield results and plan to tighten the noose, it remains to be seen if this will do the trick. However, the gap between how much exporters and retailers should pay and are paying is so wide that even improved enforcement will likely not bridge it in a short period of time. The salaried seem to be stuck with most of the country’s bill for the foreseeable future, as they always have been.
While many who look at these unfair numbers will point to corruption and how retailers being both cash-rich and politically influential is no accident, what we may be seeing is a classic case of path dependency. It is simply much easier for the state machinery to keep doing what it has been doing for the longest, which in this case means continue to disproportionately tax the salaried. It is hard for large, top-down institutions to make a quick pivot. However, pivot they must. This is not just a question of economic fairness and justice but also of growth and efficiency. The salaried, especially highly skilled and educated professionals, are at the centre of any viable development plan for Pakistan. One simply cannot take this country forward if doctors, engineers and teachers are forced to pay for the country's problems while reaping none of the gains. This does not mean that exporters or retailers are unimportant. They occupy a key place in the economy as well and the state should take their concerns seriously. This should not, however, result in the salaried being totally ignored and left with everyone else’s tab.
