he taxes imposed under Finance Act, 2024, with effect from July 1, in the case of salary income [as defined in Section 12(2) of the Income Tax Ordinance, 2001] for middle-level employees for withholding of tax on average monthly basis are extortionist, rather confiscatory, discriminatory and expropriatory. Such taxation is undoubtedly unconstitutional in terms of Articles 4, 14, 18, 23 and 25 of the constitution, especially with the extra burden of indirect taxes, rising cost of utilities and double-digit inflation.

For self-employed persons or those having limited/ fixed income sources, the impact of regressive indirect taxes, especially the sales tax on edibles (including milk), items of daily use, medicines and educational tools, is going to have a disastrous financial impact. It can be safely concluded that such taxation is anti-people, anti-business and anti-growth. It is devastating for the poor and families belonging to the middle-, even upper-middle class.

Meanwhile tax-free allowances, perquisites and benefits available to the privileged classes have not only been retained but increased. This makes the privileged few parasitic, thriving on the taxpayers’ money and/ or funded through costly borrowed money, burden of which is ultimately borne by other citizens.

Section 12(2)(f) of the Income Tax Ordinance, 2001 includes pension in the definition of salary, making it taxable at the usual rates. However, Clauses 8, 9, 12 and 13, Part I of the Second Schedule to the Ordinance, exempt pension or its commutation without any quantum in the hands of members of armed forces, civil servants and judges of High Courts and Supreme Court even if they get employment after retirement or enjoy any other source of income or more than one pension.

For ordinary citizens, pension is tax exempt, if received from a former employer, other than where the person continues to work for the employer (or an associate of the employer). In cases where a person receives more than one such pension, the exemption applies only to the higher of the pensions received.

The government could have avoided exorbitant income tax, yielding around Rs 70 billion, on the salaried persons by taxing the rich exempt pensioners [total cost of it as per FBR’s Tax Expenditure Report 2024 was Rs 78.34 billion]. This would have made the taxes more equitable. The federal budget for pensions this year is a whopping Rs 1,014 billion. Out of this Rs 662 billion is for the military and Rs 220 billion for civilians. The expenditure will be met from expensive borrowed funds as the government’s net revenue receipts of Rs 10,377 billion [even if tax revenue target of Rs 12,970 billion and non-tax of Rs 4,845 billion are met] will be barely sufficient for debt servicing of Rs 9,775 billion.

The new higher tax slabs for salaried employees with 10 percent surcharge, if annual taxable income exceeds Rs 10 million, are more burdensome for all, but for middle income group earning up to Rs 300,000 per month these are catastrophic. The take-home salary will not suffice even for household, utility bills, education and healthcare expenses of an average family of four if they own a house, which is rare. Adding rent will be another expense of Rs 75,000 to 100,000 per month for an ordinary accommodation in any big city, if not more. After withholding tax, take home monthly emoluments for a person earning a salary of Rs 3.6 million per annum will be Rs 254,000 only.

A rate of 25 percent [tax plus 10 percent surcharge] applies for salaries between Rs 1,200,000 and 2,200,000 per annum; 35 percent [tax plus 10 percent surcharge] for a salary exceeding Rs 2.2 million and up to Rs 3.2 million. A rate of 40 percent [tax plus 10 percent surcharge] applies for annual salary exceeding Rs 3.2 million up to Rs 4.1 million and maximum tax rate of 45 percent [tax plus 10 percent surcharge] for salary exceeding Rs 4.1 million.

Unfortunately, in Pakistan, the tax burden on the less privileged has been continuously increased. The safaid-posh, salaried individuals of lower- and middle-income classes with a fixed income, have been the worst hit. The rich and mighty, on the other hand, are paying meagre amounts. Members of militro-judicial complex and parliamentarians are enjoying extraordinary tax-free perks and benefits—nobody speaks about this ruthless wastage of taxpayers’ money.

Salaried people are compelled to spend sizeable amounts from their salary on the educational needs of their school-going children (which is a duty of the state under Article 25A of the constitution) and yet, tax credit is not available for the whole amount under Section 60D of the ordinance, being restricted to a taxable income of Rs 1.5 million. This shows the apathy of the government towards the salaried class that constitutes an overwhelming majority of the middle-class in the country. Meanwhile, unprecedented tax breaks and benefits have been extended to the wealthier echelons of the society.

The higher tax slabs for salaried persons and the impact of cost-pushed inflation due to regressive taxes will obviously affect all employees, including those in public sector, nullifying the nominal increase in their pays. But those in Grades 20-22 will keep enjoying special exemption under Clause (27) of Part II of the Second Schedule to the ordinance, which says: “The tax on payments under the Compulsory Monetisation of Transport Facility for Civil Servants in BS-20 to BS-22 (as reduced by deduction of driver’s salary) shall be charged at the rate of 5 percent as a separate block of income.” This shows the hollowness of the claims of the present government that it is committed to not increasing the tax burden of salaried workers and the tall claims of prioritising education and health of all citizens.

Will Premier Shahbaz Sharif order a probe to ascertain how many officers in BS 20-22 are benefiting from this clause as well as using official transport? This matter of abuse of law is never highlighted in the media or the parliament. Why did the hierarchy of the Federal Board of Revenue engaged in budget making not apprise the Federal Minister for Finance and Revenue Muhammad Aurangzeb about this clause? Why did the IMF not insist for withdrawal of this concession inserted in 2012?

While millions of salaried people, having no other source of income, are funding their dependent children for education or as unemployed, are taxed unconstitutionally, it is worthwhile to mention that all allowances, including special judicial allowance, as well as numerous benefits in kind of our highly paid judges of the Supreme Court and High Courts are exempt under Clause (55) and (56), Part I, Second Schedule to the ordinance.

Sections 13(11) and 39(1)(j) of the ordinance require that fair market value of any benefit provided free of cost or at a concessional rate to any employee shall be added in his income. The prime minister, claimed to be determined to uproot corruption, must order the FBR for recovery of lost revenue of billions due from all servants of the state who received free or concessional plots or lands or any other benefit(s) and did not pay due tax under Sections 13(11) and 39(1)(j) of the ordinance. The recovery of these funds will create sufficient resources to finance targeted relief for the poor and the deserving low-wage salaried class.

The writer, an advocate of the Supreme Court and an author, is visiting faculty at the Lahore University of Management Sciences (LUMS). He is an advisory board member and visiting senior fellow at the Pakistan Institute of Development Economics (PIDE)