Karachi, May 27, 2025 – A storm is brewing in the tax landscape as experts sound the alarm over what they describe as an unjust policy of taxing salary on the gross amount—not the net take-home pay—causing financial strain across Pakistan’s salaried class.
Leading the charge is the Institute of Chartered Accountants of Pakistan (ICAP), which has boldly questioned the rationale behind this long-standing method of salary taxation in its budget proposals for 2025–26.
ICAP argues that while the policy of gross salary taxation was initially balanced by lower tax rates, the government has gradually increased both income slabs and tax percentages without restoring critical exemptions and allowances. This, experts warn, has turned a once-reasonable framework into a burdensome trap for hardworking professionals.
To make matters worse, the withdrawal of key tax credits—especially under Sections 62 and 62A of the Income Tax Ordinance, 2001—has only deepened the wound. These credits, which provided vital tax relief on investments in mutual funds, pension schemes, and life insurance, were a cornerstone of financial planning and saving for salaried individuals. With their elimination in the Finance Act 2022, experts now say that middle- and upper-middle-income earners are being unfairly squeezed.
Calling for immediate reform, ICAP has urged the government to either rationalize the salary tax rates or restore long-forgotten exemptions on essential employment-related benefits such as house rent, conveyance, utility, and house financing. According to experts, these allowances once acted as a buffer against rising living costs, and their reinstatement could bring much-needed relief to salaried workers.
Another explosive recommendation from ICAP revolves around the treatment of passive income. The institute believes that passive earnings—such as interest or rent—should not disqualify an individual from accessing the salary-based concessional tax regime. Experts argue that passive income does not change a person’s status as a salaried taxpayer and should not be penalized under the current framework.
“The tax regime must be equitable,” ICAP stressed, highlighting the stark contrast between salaried individuals taxed on their full gross income and businesspersons who enjoy deductions before taxes are applied. Experts say it’s high time for a fair, documented, and morale-boosting approach that treats salaried individuals with the financial dignity they deserve.
In short, the war cry is clear: stop punishing honest earners, and start reforming the salary tax system to reflect economic reality.