In Islamabad, the World Bank has withdrawn its previous recommendation to impose taxes on monthly salaries below Rs50,000, citing recent data showing that salaried individuals, who are often marginalized, have paid more in taxes during the past three months than the combined taxes paid by the wealthiest exporters and the unregulated real estate sector.
Government statistics reveal that salaried individuals contributed Rs70.6 billion in income tax from July to September of the current fiscal year, exceeding the total tax contributions of both the wealthiest exporters and the influential but unregulated real estate sector, which amounted to only Rs65 billion in the same period. Many salaried individuals use public transport or motorcycles to commute to work, highlighting the disparity in wealth and income.
The World Bank clarified its stance on the controversial recommendation to tax incomes below Rs50,000 per month, stating that the suggestion was based on 2019 data and should be updated to account for recent inflation and labor market conditions. They emphasized that they do not recommend a specific income tax exemption level and suggested conducting a fresh survey to determine the appropriate threshold for tax exemptions while protecting low incomes.
The World Bank called for comprehensive tax reforms to create a more progressive tax system, with increased taxation on higher-income individuals and reduced subsidy expenditures, closing regressive tax exemptions, and improving taxation of agriculture, property, and retail sectors. They stressed that reducing the current nominal income tax threshold would not achieve progressivity and that increased taxation should target higher incomes.
Despite these considerations, the salaried class has faced increased tax burdens in recent budgets, resulting in an additional Rs17.7 billion in taxes on salaried individuals over three months. During the current fiscal year’s first quarter, salaried individuals paid 33% more income tax compared to the same period last year, contributing significantly to withholding taxes.
Exporters, despite earning significant income, paid only a fraction of their income in taxes, with their contribution dropping from 4% to 3.6% of total withholding taxes. The real estate sector’s tax contributions, while increased, still fell far short of what salaried individuals paid in the same period.
Overall, the data highlights disparities in tax contributions across different income groups and sectors, with contractors, bank account holders, importers, and salaried individuals being the largest contributors to withholding taxes.