Karachi, October 25, 2023 – The Federal Board of Revenue (FBR), Pakistan’s premier tax collection agency, has achieved a remarkable 41 percent growth in tax collection from salaries during the fiscal year 2022-23, based on official data.
In this fiscal year, the FBR collected a substantial sum of Rs 276 billion in comparison to the Rs 196.2 billion collected in the preceding fiscal year. This significant increase in tax collection from salaries has not only demonstrated the agency’s prowess but has also notably contributed to the overall direct tax revenue. The share of tax collection from salaries within direct taxes rose to 3.5 percent for the fiscal year 2022-23, up from 2.6 percent in the prior fiscal year.
Official documentation reveals that withholding tax on salaries experienced a remarkable uptick of 40.7 percent during FY23, surpassing the 29.3 percent increase recorded in FY22. The primary catalyst for this surge in tax collection from salaries can be traced back to the revision of the progressive income tax slabs, introduced through the Finance Act of 2022.
The revamped income tax slabs imposed higher tax liabilities on salaried individuals with taxable incomes exceeding Rs 3.6 million, which included the top three income brackets, and those positioned near the upper limit of the middle slab, ranging from Rs 2.4 million to 3.5 million. This led to increased tax obligations for these income groups, thereby boosting the overall tax collection from salaries.
Furthermore, in the fiscal year 2022-23, federal government employees experienced an increase in their salaries. The Ministry of Finance announced the replacement of the BPS-2017 pay structure with the BPS-2022 structure, along with an upward revision of pay brackets. Additionally, an ad-hoc relief of 15 percent of the basic pay was granted, which was an enhancement from the prior year’s relief of 10 percent.
These measures, both in terms of tax regulations and government employee salaries, played a pivotal role in the substantial increase in tax collection from salaries during the fiscal year 2022-23, as per the latest data released by the FBR.
This substantial increase in direct tax revenue is poised to have a positive impact on Pakistan’s fiscal stability and economic prospects. By enhancing its capacity to fund essential public services and infrastructure projects, the government can foster economic growth and improve the well-being of its citizens.
Economists and financial experts maintain that this growth in tax collection from salaries reflects a favorable willingness among taxpayers to comply with tax regulations, as well as the government’s commitment to establishing a fair and sustainable tax system. This is expected to improve investor confidence and attract foreign investments, which can further stimulate economic growth.
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