Officials Consider Lower Income Tax Rates Instead of Pay Raises
The federal government is considering reducing the income tax burden on salaried individuals while avoiding increases in salaries and pensions in the upcoming budget, officials familiar with the discussions said.
According to informed sources, Finance Minister Muhammad Aurangzeb wants to lower tax rates and possibly increase the taxable income threshold for salaried employees because of their major contribution to national revenue collection.
Officials explained that the government may use savings from freezing salaries and pensions to provide direct tax relief instead. They argued that salary hikes often push employees into higher tax brackets, resulting in little improvement in take-home income for government workers.
Furthermore, authorities believe lower tax rates and a higher taxable threshold would leave employees financially better off even without salary increases.
Salaried Class Continues to Bear Major Tax Burden
Government salaries have increased by more than 60 percent during the past four years, while private sector wages largely remained stagnant due to inflation and slower economic growth.
Meanwhile, the tax policy office and independent consultancy firms are preparing several proposals ahead of budget discussions with the International Monetary Fund (IMF), scheduled to begin on May 15.
Officials also indicated that the federal development programme could face further cuts, although final decisions on taxes, salaries, and spending will emerge after consultations with the IMF.
During the current fiscal year, the salaried class reportedly paid over Rs425 billion in taxes during the first nine months. This amount exceeded the real estate sector’s contribution of nearly Rs200 billion and surpassed the combined taxes collected from wholesalers, retailers, and exporters.
However, officials confirmed that recently approved salary increases for Public Sector Development Programme employees would remain protected. The government approved a 20 to 35 percent increase for PSDP employees last month after a four-year gap.
