Salaried class paid 127% more income tax than real estate sector

Pakistan's pre-budget estimates for the concluded fiscal year reveal that salaried individuals contributed approximately 630 billion rupees in income tax. This amount represents 127% more than the tax collected from the real estate sector, highlighting a stark disparity within the national tax net. The 630 billion rupee revenue from salaried employees includes crucial ledger adjustments for federal employees and armed forces personnel, marking a 4% increase over the 606 billion rupees recorded in the previous fiscal cycle. Consistent data from the Accountant General of Pakistan Revenues (AGPR) indicates that these final figures may increase slightly once the administrative accounts for June are fully finalized.

Despite this, the federal government's recent budget has shifted fiscal relief in favor of property speculation, granting a 115 billion rupee tax cut to the real estate market while offering only a limited 7% relief package worth 52 billion rupees to income earners. Despite this massive gap and inequity, the policy change has moved to encourage rather than discourage real estate investments. In contrast to the heavy financial burden borne by formal employees, the real estate sector contributed 278 billion rupees in income taxes via withholding mechanisms on property transactions.

Although this collection initially reflected a 17% increase over the previous year, financial analysts predict a significant contraction in revenue from this sector due to the extensive concessions introduced with the new budget. This policy change effectively reverses a two-year government strategy aimed at penalizing speculative real estate investments to promote industrial development. Affecting a segment that generated 191 billion rupees in revenue last year, the government consolidated the three existing tax brackets on property sales into a single flat rate of 2.75%, down from the previous maximum rate of 5.5%.

Furthermore, withholding tax rates on property purchases have been reduced from 2.5% to 1.25%, marking the second consecutive year of lowering sales taxes. For the salaried class, the maximum income tax threshold of 35% has been raised from 4.1 million to 7 million rupees annually, and marginal tax rates for mid-level executives earning between 267,000 and 583,000 rupees monthly have been reduced by 3%. While these adjustments provide limited relief for employees, they continue to uphold the inequity in the overall tax structure.

Beyond property concessions, the fiscal framework also extends significant tax incentives to small retailers and traders who traditionally contribute nominal amounts to direct tax revenues. The newly introduced optional fixed income tax system allows retailers to pay 1% of their total sales. This specific scheme explicitly exempts participating traders from mandatory digital economy documentation and state audit procedures. Experts view the provision allowing traders to exit the fixed tax regime after just one year as a flaw, warning that it could allow individuals to temporarily register, legalize undocumented assets under audit immunity, and then exit the formal tax net.