A recent report by the Federal Board of Revenue has highlighted a truth already known: Pakistan’s salaried class has experienced a significant increase in tax collection, amounting to Rs243 billion in the first half of FY25 – a sharp rise from Rs157 billion in the same period last year. While this surge in revenue may be a cause for celebration for policymakers striving to meet IMF conditions, the burden on the salaried class has been overwhelming. The government’s decision to revise tax rates in the last budget has hit those earning Rs500,000 to Rs1,000,000 per month particularly hard, slashing their take-home pay. For the first time, Pakistan aims to generate Rs500 billion in revenue solely from the salaried class. However, this seemingly successful fiscal policy masks a glaring and persistent inequity.
While the salaried class remains an easy target for tax authorities due to their formal income structures, traders continue to enjoy leniency and disproportionately low tax rates. Despite repeated promises of strict action against tax evasion, the government has failed to address the structural issues that allow certain groups to escape their tax obligations. In FY25’s first half, the salaried class contributed three times more in taxes than traders. This disparity highlights the deeply flawed nature of Pakistan’s tax regime, where those who earn transparently bear the brunt of fiscal pressure while undocumented and cash-based sectors evade accountability. The salaried class has no room to manoeuvre. Taxes are deducted at source, leaving little to no opportunity for evasion. In contrast, traders and other undocumented groups operate under the government’s very nose with minimal oversight. Whether it is the lavish wedding trousseau markets that thrive on cash transactions or the bustling cattle markets where millions exchange hands without documentation, these sectors blatantly evade taxes. Last year’s marginal increase in exporters’ income tax from 1-2 per cent doubled the collection to Rs80 billion, proving that even minor adjustments to sectors outside the salaried class can yield significant revenue. Yet, these adjustments remain few and far between.
The government’s inability – or unwillingness? – to expand the tax net reflects a failure to address systemic inequalities. Authorities seem content with exploiting the salaried class instead of targeting sectors with vast untapped potential. This approach is not only unsustainable but also unjust in a country where public services are deteriorating, utilities are increasingly privatised, and inflation continues to erode purchasing power. High tax rates themselves are not inherently problematic if they are part of a fair and equitable system. However, Pakistan’s tax regime is anything but. In fact, these inequities in the tax regime are further exacerbated by the country’s entrenched class dynamics. Policies that disproportionately target the salaried class reflect a systemic bias against middle-income earners, who are often seen as compliant taxpayers due to their formal income structures. Meanwhile, the wealthier elite, including large traders and industrialists, leverage their influence and access to evade taxes or negotiate favourable terms. The working class barely earns a living wage to even figure in this debate. The focus must shift towards documenting the economy, cracking down on tax evasion, and holding all sectors accountable. Traders and other cash-heavy industries must be brought into the formal economy to ensure that the burden is shared equitably. Without addressing these disparities, the government risks alienating its citizens who are rapidly losing faith in the state’s ability to govern equitably.