Govt must cut salary, corporate taxes | The Express Tribune

KARACHI:

It’s that time of the year again when millions of salaried Pakistanis are busy filing their tax returns. Alongside this annual ritual, an important debate has surfaced on social media – how much of Pakistan’s total tax revenue actually comes from the salaried class?

The debate, though emotional, should be seen as a healthy sign of public awareness. But more than just comparing contributions, it should help policymakers reflect on whether our tax system is fair, equitable, and progressive.

Wages in Pakistan remain among the lowest in the world, and even in regional comparison, our labour remains exceptionally cheap. This is not because of productivity but because the supply of labour far exceeds demand. Even if we assume skills are comparable with regional peers, Pakistan continues to be a low-wage economy in dollar terms. To make matters worse, the rupee has depreciated by more than 60% since 2017 – an average decline of nearly 14% per year – eroding real incomes year after year. When incomes fall and taxes rise, the system punishes those who choose to stay compliant.

Low wages, high taxes don’t build nations

Pakistan’s effective tax rate for the salaried middle class is now higher than in most regional economies. Meanwhile, the super tax and withdrawal of legitimate tax credits – once available for mutual funds, life insurance, or IPO investments – have further increased the burden on honest taxpayers.

Instead of broadening the net, the state has leaned more heavily on the same narrow base of corporates and salaried employees to fill its coffers. Our senior leaders in salaried organisations earn less than the minimum wages given in developed countries to their unskilled labour. Across cities, thousands of traders, shopkeepers, service providers, and professionals remain outside the tax net. From barbers and bakeries to tuition academies, jewellers, construction contractors, pharmacies, and car workshops – the entire business sectors thrive on cash transactions and under-reporting. While a few million salaried individuals shoulder most of the documented taxes, a much larger informal economy remains untaxed and unregulated.

The honest few pay for the comfort of many

This imbalance is not an accident; it’s by design. With only around 2-3 million active filers in a population of 250 million, the salaried class does not hold political leverage. It is easier to please larger vote banks through targeted subsidies, free solar panels, tractors, or cash transfers under BISP than to reward compliant taxpayers through lower rates. For policymakers, spending Rs50-100 billion in pre-election giveaways yields far greater returns than providing genuine relief to honest professionals.

The result is that a globally qualified, educated segment – whose parents took loans and worked double shifts to fund their children’s education – ends up being penalised for its honesty. Each year, this group pays millions in extra taxes that could have been invested in building businesses, buying homes, or funding education. Keeping the poor perpetually poor might secure votes, but it cannot build a strong economy. A nation cannot rise by taxing its best and sparing its informal elite. Why can’t we just end Rs5,000 notes to begin? If we have political mileage under the current leadership structure, it is better to demonetise than increase the buyback rate for solar users.

When taxation becomes political, fairness becomes optional

The loss is not just moral; it’s economic. High tax rates make good employees expensive for corporations already struggling under super tax and overregulation. Regional competitors have reduced corporate tax rates below 25%, while Pakistan hovers near +35%. This imbalance erodes competitiveness and discourages formal job creation. Talented professionals, disillusioned by low take-home pay and rising inflation, find it easier to migrate – causing a permanent outflow of human and financial capital.

When you tax ambition, you export it. The irony is that while we proudly call these professionals “ambassadors of Pakistan,” their remittances are not a substitute for the innovation, entrepreneurship, and productivity they could have generated at home. Pakistan’s remittance model – driven mainly by low-skilled labour migration – is losing steam as Gulf economies localise their workforces. The path to prosperity lies not in exporting workers, but in enabling them to build wealth within the country.

You can’t remittance your way to prosperity

Higher taxes also distort incentives. Professionals increasingly prefer freelancing, consultancy, or small informal ventures over formal employment. Mid-sized companies, in turn, resort to partial cash payments or perks to retain staff. Over time, this further shrinks the formal economy, limiting its capacity to generate new jobs. Ask any university graduate – the reward for education in Pakistan is shrinking fast, and the dream of upward mobility is fading.

A 3-4% GDP growth is not stability; it’s stagnation. It traps Pakistan in a low-income loop dependent on remittances, not productivity. The direction of the economy must change – and taxation reform must lead that change. Reducing taxes on salaries and corporates over the next decade, while digitising and enforcing compliance in informal sectors, can expand the tax base and improve fairness. Pakistan’s tax-to-GDP ratio stands at roughly 11% today. Raising it to 15% over the next 10 years is possible, but only by broadening participation, not squeezing the few who already pay.

Broadening base, not bleeding honest, is only sustainable path

IMF conditions cannot be an excuse to delay reform. Fiscal discipline and tax fairness are not mutually exclusive. A modernised FBR, transparent data-sharing between institutions, and digital payment tracing can deliver results without burdening honest citizens. It is time to send a message that Pakistan rewards compliance, not penalises it. The choice is simple: reduce taxes, reward honesty, retain talent – or be ready to lose them forever.

The writer is an independent economic analyst