The tax structure in Pakistan has literally become a case study in unequal treatment that shows two sides of a dark reality: one for easily heavily taxed salaried workers and another for sectors that remain lightly documented and lightly taxed.
The government a short while ago announced a simplified tax regime for shopkeepers, but nothing for the salaried class. I’m not Mr. Miftah, but here goes.
Eligible retailers with annual sales up to around Rs. 200 million may opt for a simplified system where tax is calculated at a fixed rate of 1 percent, along with simplified filing requirements.
In contrast, salaried individuals remain subject to a progressive income tax system under the Federal Board of Revenue (FBR), where rates increase with income levels and can reach up to approximately 35 percent for top earners, along with additional surcharge provisions where applicable.
Current slabs
| Annual Income (Rs) | Monthly Equivalent | Tax Rate |
|---|---|---|
| Up to Rs. 600,000 | Up to Rs. 50,000 | 0% — fully exempt |
| Rs. 600,001 to Rs. 1,200,000 | Rs. 50,001 to Rs. 100,000 | 1% of amount exceeding Rs. 600,000 |
| Rs. 1,200,001 to Rs. 2,200,000 | Rs. 100,001 to Rs. 183,333 | Rs. 6,000 + 11% of amount exceeding Rs. 1,200,000 |
| Rs. 2,200,001 to Rs. 3,200,000 | Rs. 183,334 to Rs. 266,667 | Rs. 116,000 + 23% of amount exceeding Rs. 2,200,000 |
| Rs. 3,200,001 to Rs. 4,100,000 | Rs. 266,668 to Rs. 341,667 | Rs. 346,000 + 30% of amount exceeding Rs. 3,200,000 |
| Above Rs. 4,100,000 | Above Rs. 341,667 | Rs. 616,000 + 35% of amount exceeding Rs. 4,100,000 |
In 9 months of the outgoing fiscal year, the salaried class paid Rs. 420 billion tax, significantly higher compared with regional countries and relative to the real estate sector and retailers.
The 10-month picture will be shared soon but we get the picture.
‘Disadvantage’ of Being a Salaried Worker
Tax is deducted directly from salaries through the withholding system, ensuring near-complete compliance.
Employers are legally required to deduct income tax before transferring monthly salaries. This ensures nearly 100 percent tax compliance from fixed-wage earners.
Conversely, small businesses and retailers largely operate in an undocumented cash economy. This allows them to underreport or evade taxes entirely.
Big Picture: More Clarity
| Feature | Salaried Class | Small Traders / Retailers (Fixed Scheme) |
|---|---|---|
| Tax Basis | Net income (salary after deductions) | Gross annual turnover (sales) |
| Tax Structure | Progressive tax slabs up to ~35% + surcharge (where applicable) | Fixed ~1% turnover tax (optional scheme) |
| Collection Method | Automatic withholding by employers | Self-declared filing under simplified regime |
| Compliance Style | Fully documented payroll system | Largely simplified reporting structure |
| Turnover / Income Scope | No turnover limit; applies to all salary levels | Typically capped around Rs. 200 million turnover eligibility |
| Enforcement Visibility | High (employer-based deduction system) | Varies; depends on registration and declaration |
| Additional Taxes | Subject to multiple withholding taxes on utilities and consumption | Also subject to indirect taxes but different compliance structure |
The disparity between the two systems has fueled several threads of online debate over tax fairness in Pakistan.
Salaried individuals operate under a fully traceable system where taxes are deducted at source, leaving limited room for adjustment or negotiation.
And to avoid massive strikes and political backlash from influential trader unions, the government uses “carrots” (like the 1 percent flat tax scheme, audit immunity, and adjustable withholding tax) to motivate traders to register.
For salaried workers, there are no bargaining chips; they take fiscal shortfalls directly on the chin.
Salaried individuals do not just pay income tax—they pay massive withholding taxes on electricity, mobile bills, fuel, and daily commodities as well.
Because these are consumption taxes, the fixed-income middle class suffers the most, especially under high inflation.
Next week’s budget should offer an equal amount of relief for the salaried class, or presenting just peanuts would discourage the tax regime even more next fiscal year.
The views expressed here do not necessarily reflect ProPakistani and its owners.
