Karachi, May 13, 2024 – Startling revelations by foreign investors operating in Pakistan have shed light on an alarming fiscal trend: the salaried class is shouldering a disproportionate tax burden, eclipsing the combined contributions of exporters and retailers.
The Overseas Investors Chamber of Commerce and Industry (OICCI), representing foreign investors, has urged for a recalibration of Pakistan’s tax policy, emphasizing equity and fairness in the upcoming budget for 2024-25.
Foreign investors, in their proposals for the impending fiscal year, have called for a fundamental reassessment of taxation, particularly for the salaried populace. They highlight the significant hike in income tax rates for this demographic, notably implemented through the Finance Act of 2022. Under this legislation, income tax rates for salaried individuals surged by 7% to 10%, with an additional 2.5% increment through interim measures enacted by the previous government. Consequently, salaried individuals now contend with tax rates soaring up to 35% of their gross income, prior to any deductions.
Moreover, the once-available tax credits for salaried workers, including investments in mutual funds, house finance loans, and insurance premiums, have been rescinded. This elimination exacerbates the tax liabilities of the salaried class, depriving them of essential avenues for financial planning and growth.
The injustice inherent in burdening the salaried class disproportionately has drawn condemnation from various quarters. Despite being the most compliant taxpayers, as their taxes are deducted at the source, salaried individuals find themselves bearing the brunt of fiscal obligations. Unlike corporations, which can offset their taxable income with legitimate expenses, the salaried workforce faces taxation on their gross income, without any allowances for expenditure. This glaring disparity has provoked widespread indignation, leading to an exodus of skilled professionals from the country.
The ramifications of this skewed fiscal policy are dire, with Pakistan hemorrhaging talent at an alarming rate. Approximately 800,000 individuals are estimated to depart the nation annually, depriving Pakistan of invaluable human capital and expertise. The brain drain triggered by oppressive tax policies risks hollowing out the nation’s intellectual reservoir, jeopardizing its economic prospects and global competitiveness.
In light of these pressing concerns, stakeholders have put forth a set of urgent recommendations to rectify the fiscal imbalance:
1. Rationalization of Salary Tax Rates: The current tax structure disproportionately burdens salaried individuals and must be recalibrated to ensure equity across all sectors. Salaried workers should not be subjected to higher tax rates than exporters and retailers combined.
2. Revival of Tax Credits: The restoration of tax credits for salaried individuals, particularly in terms of investments in mutual funds, house building loans, and insurance premiums, is imperative. These incentives not only promote financial inclusion but also alleviate the tax burden on the workforce, fostering economic stability and growth.
Addressing these recommendations is paramount to fostering an equitable fiscal landscape in Pakistan. Failure to act decisively risks exacerbating socioeconomic disparities, impeding progress, and perpetuating an exodus of talent from the nation. As Pakistan stands at a crossroads, the onus lies on policymakers to enact reforms that uphold fairness, stimulate growth, and safeguard the future prosperity of the nation.