Salary tax collections drop year-on-year as debate grows over relief for salaried class in upcoming budget
ISLAMABAD: The Federal Board of Revenue (FBR) collected over Rs518 billion in salary tax during the first eleven months (July–May) of fiscal year 2025-26 (11MFY26), reflecting a decline of around 6 per cent on a year-on-year basis.
According to official sources, salary tax collection stood at Rs518.48 billion during the period compared to approximately Rs555 billion in the corresponding months of the previous fiscal year.
The decline comes at a time when the taxation of salaried individuals remains a contentious issue in Pakistan, with repeated calls from various quarters for a reduction in income tax rates to provide relief amid rising inflation and cost of living pressures.
However, the latest trends suggest that salaried taxpayers may not receive significant relief in the upcoming Budget 2026-27, as revenue pressures continue to shape fiscal policy decisions.
Despite the recent slowdown, FBR had previously reported stronger growth in salary tax collections. The total stood at around Rs605.59 billion in fiscal year 2024-25, reflecting a notable upward trajectory over the past few years.
FBR data shows a sharp increase in salary tax contribution over time, rising from approximately Rs152 billion in fiscal year 2020-21 to Rs196.25 billion, Rs276 billion and Rs391 billion in subsequent years, highlighting expanding compliance and rising taxable income within the salaried segment.
Officials noted that if the declining trend observed in 11MFY26 continues into the final month of the fiscal year, it would mark the first annual decline in salary tax collection in six years.
Tax analysts suggest that the fluctuation may reflect multiple factors, including adjustments in income levels, employment trends, and broader economic conditions affecting disposable incomes.
The salaried class remains one of the largest contributors to direct tax revenues in Pakistan, with withholding income tax playing a central role in FBR’s overall collection strategy.
The debate over salary taxation is expected to remain a key issue in budget discussions, with policymakers balancing revenue requirements against demands for tax relief in Budget 2026-27.
