Islamabad, April 14, 2025 — The Salaried Class Alliance Pakistan has called upon the federal government to introduce urgent reforms in the upcoming FY2025–26 budget, emphasizing a revision of tax slabs, enhancement of exemption limits, and reinstitution of key tax deductions. In a formal communication to Finance Minister Senator Muhammad Aurangzeb, the Alliance also urged the government to take decisive action against undocumented sectors that evade taxation.
Salaried Class Faces Sharp Tax Burden Despite Inflation and Stagnant Wages
According to the Alliance, the tax burden on Pakistan’s salaried individuals has intensified significantly over recent years. Tax collection from this segment alone has increased dramatically from Rs 76 billion in 2019 to a projected Rs 570 billion in 2025, highlighting a 650% surge in just six years.
While the Alliance appreciated the government’s commitment to improving revenue collection, it stressed that the salaried class is unfairly overburdened, especially amid record-breaking inflation and stagnant wage growth.
Salaried individuals are already struggling to maintain a decent standard of living due to rising costs and limited income growth,” the letter stated.
Key Concerns: Abolished Deductions and Rising Surcharges
The Alliance strongly criticized the removal of several tax credits and deductible allowances under the Finance Act 2022. These include deductions for:
- Investments in shares, mutual funds, Sukuk
- Life and health insurance
- Profits on loans from scheduled banks and SECP-regulated NBFCs
Additionally, the Finance Act 2024 imposed a 10% additional surcharge, further eroding the financial stability of salaried taxpayers.
This has compelled many professionals to seek jobs abroad, worsening Pakistan’s brain drain
Medical & Employment-Related Expenses Largely Ignored
Although a 10% medical allowance remains exempt under Clause 139 of Part I of the Second Schedule of the Income Tax Ordinance, 2001, the Alliance argues that this exemption has not kept pace with healthcare inflation. Moreover, employment-related expenses such as commuting costs remain non-deductible, putting salaried individuals at a further disadvantage compared to other taxpayer categories.
Pakistan’s Tax Regime Compared to Peer Economies
The Alliance presented a comparative analysis with countries such as India, Bangladesh, Vietnam, and Nepal, pointing out that Pakistan’s taxation system is more regressive, with lower exemption limits and limited tax relief options for salaried workers.
Pakistan’s most tax-compliant group is being penalized while vast segments of the economy remain outside the tax net
Demands for Reform in Federal Budget FY2025–26
To restore fairness and sustainability in the tax system, the Salaried Class Alliance submitted the following budget recommendations:
1. Revise Income Tax Slabs
- Align tax slabs with current inflation and cost-of-living indicators.
- Revert to pre-Finance Act 2024 tax rates and eliminate the 10% additional surcharge.
2. Increase Medical Allowance Exemption
- Raise the exemption from 10% to 25% to reflect real healthcare costs.
3. Introduce Commuting & Job-Related Allowances
- Allow a 15% deductible allowance for transport and work-related expenses.
4. Enhance Annual Exemption Threshold
- Double the exemption limit from Rs 600,000 to Rs 1,200,000 to offset inflation.
5. Expand the Tax Net
- Launch targeted efforts to bring the real estate sector, wholesale trade, and informal businesses into the formal tax system.
Call for Equitable Tax Reforms
The Alliance concluded by urging the Finance Ministry and the Federal Board of Revenue (FBR) to prioritize the financial well-being of salaried citizens—Pakistan’s most transparent and compliant taxpayer group.
“Fiscal reforms should not punish the honest. The upcoming budget must focus on fair taxation, expanding the tax base, and protecting the middle class from further economic strain.”
The Finance Minister is expected to present the Federal Budget 2025–2026 in the coming months, and all eyes are now on whether the government will address the concerns raised by the salaried class.
