In the scorching heat of June, Finance Minister Muhammad Aurangzeb presented a mammoth federal budget of Rs18.877 trillion for FY2024-2025.
The budget, heavily influenced by the International Monetary Fund’s (IMF) dictates, aims to increase direct and indirect taxes, looks to increase development spending, and has almost 50 per cent earmarked for debt servicing among other things.
However, the major issue facing the country is that of a very low tax base, in which only five million individuals file their tax returns and pay direct taxes on an annual basis, out of 240 million people. This is a significant barrier to growth and speaks volumes about the inefficiency of the government in increasing the tax base but also reduces its ability to spend more on its citizens and their welfare.
The major sticking point of the newly presented and approved budget is for the salaried class of Pakistan, with an exorbitant increase in all the tax rates for those earning monthly income.
The tax rate for salaried individuals earning between Rs50,000 and Rs100,000 per month has been doubled. The proposed increase would see the tax rate go up from 2.5 per cent to 5.0 per cent on all income earned above Rs50,000 in this bracket. Subsequently, the higher slabs, ranging from Rs100,000 to Rs183,344, Rs183,345 to Rs267,666, Rs267,667 to Rs341,666, above Rs341,666, and above Rs833,333, have seen an increase of almost 15-35 per cent in taxes.
This measure will see a rise of 48 per cent in direct taxes which will increase the already exploited salaried class of the country. According to Dr Aneel Salman, chair of Economic Security, IPRI, “the government, rather than widening the net to encapsulate a broader segment of the population, is once again resorting to extracting more from those already within the tax loop. This approach not only exacerbates the burden on a sliver of the populace but also stifles potential economic vibrancy by discouraging higher earnings and capital investment.”
An example of peaceful protests to protect the rights of the people is the Icelandic Pots and Pans revolution in 2008-09, which began in response to the rising inflation and unemployment caused by the collapse of three Icelandic banks namely Glitnir, Landsbanki, and Kaupthing. This caused currency devaluation and led to many Icelanders losing their savings; their bank accounts were also frozen. After months of protests, prime minister Geir Haarde and his coalition government resigned in January 2009 and a new left-leaning government was elected to the center.
To protect the rights of the salaried class of Pakistan, a group of professionals have emerged – calling themselves the Salaried Class Alliance of Pakistan. These individuals aim to advocate on behalf of the salaried class and want to form an organized community that will fight for the rights of the professionals so that the unfair burden of taxes on them is reduced.
In a recently held press conference at the Karachi Press Club, the alliance said: “there is only one class – the salaried class in Pakistan – that pays full income tax and the tax burden was already high. The backs of the middle class have been broken by increasing the tax rate in the recent budget.”
This alliance is a first for Pakistan and by gaining traction on social and mainstream media and organizing a mass movement with peaceful protests, it has the potential to bring the government to its knees and negotiate better policies for the salaried classes.
These heavy tax impositions will not only increase the already high rate of brain drain of education professionals leaving the country but will also give birth to further feelings of resentment among the educated section of society. According to reports, around 700,000 people have already left the country within the first six months of 2024.
Instead of focusing on sectors that are not paying their due share of taxes and somehow manage to wriggle their way out of the tax net, the government shows a lack of determination to crack down on those who benefit from their influential connections.
With decreasing purchasing power and disposable incomes, high inflation and cost of living, the government continues to not only push the marginalized salaried class to the brink but is also ensuring that the hatred and negativity around itself will increase.
The formation of the salaried class alliance marks a crucial step towards advocating for fair tax policies and protecting the rights of white-collared workers. By gaining the popular support of the public, the alliance has the potential to compel the government to reconsider its tax policies and promote equitable economic plans that support the growth of the salaried classes and promise a better future for them.
The writer works in the development sector. He can be reached at: waqar_91hotmail.com