Senate Rejects Tax Hikes for Salaried Class in Budget 2024-25

In a significant development, Pakistan’s Senate has rejected the proposed increase in income tax rates for salaried individuals in the upcoming 2024-25 budget. This decision comes after a review of tax contributions from various sectors revealed a significant disparity.

Unequal Tax Burden Sparks Rejection

The Senate Standing Committee on Finance and Revenue unanimously opposed the tax hike after learning that the salaried class, despite contributing a substantial Rs. 375 billion annually to the national treasury, faced potential tax increases. In stark contrast, other sectors, such as exporters (Rs. 90-100 billion) and retailers (Rs. 4-5 billion collectively), contributed far less. This inequity in the current tax system fueled the senators’ decision to reject the proposed tax burden on salaried workers.

Focus on Fairness and Broadening Tax Base

The discussions highlighted a broader push for a fairer tax system. Senators endorsed a ban on foreign travel for non-filers, aiming to incentivize tax filing. However, opinions diverged regarding the FBR’s proposal to transition exporters from their current preferential 1% tax rate to the standard tax regime. While some senators argued for equal tax treatment across sectors, others expressed concerns about potential harm to the economy if export incentives were reduced.

Revised Tax Slabs for Salaried Individuals

Despite the rejection of a major tax hike, the FBR chairman did outline revised tax slabs for salaried individuals. For those earning between Rs. 600,000 and Rs. 1.2 million annually, the effective tax would increase slightly. Similar, but progressively higher, tax increases were proposed for higher income brackets. The chairman also revealed that the International Monetary Fund (IMF) initially demanded a unified tax structure with steeper rates for both salaried and non-salaried classes. However, negotiations secured a more favorable outcome for salaried workers.

Senators Advocate for Balanced Approach

The Senate discussions emphasized the need for a balanced approach to fiscal policy. Senators rejected proposals for a fixed capital gains tax with high rates and sending parliamentarians’ tax records to Nadra. Concerns were also raised about using overly coercive measures to expand the tax base. Instead, the focus shifted towards encouraging broader participation in the tax system through fairer policies and potentially higher rates for non-filers.

The Senate’s actions highlight a crucial step towards a more equitable tax system in Pakistan. By rejecting a disproportionate tax burden on salaried individuals and advocating for broader participation from other sectors, the discussions pave the way for a fairer and more sustainable fiscal future for the country.