Pakistan’s tax system continues to draw criticism over what many see as unequal treatment between salaried employees and other sectors of the economy.
While the government has recently introduced a simplified tax regime for retailers and small traders, no major relief measures have yet been announced for salaried individuals ahead of the upcoming federal budget.
Under the proposed scheme, eligible retailers with annual sales of up to approximately Rs. 200 million can opt for a simplified tax system that applies a fixed tax rate of around 1 percent on turnover, along with easier filing and compliance requirements.
In contrast, salaried individuals remain subject to Pakistan’s progressive income tax structure, where tax rates increase with income and can reach up to 35 percent for higher earners.
Current Income Tax Slabs for Salaried Individuals
| Annual Income (Rs.) | Monthly Income Equivalent | Tax Rate |
| Up to 600,000 | Up to 50,000 | 0% (Tax Exempt) |
| 600,001 – 1,200,000 | 50,001 – 100,000 | 1% of amount exceeding Rs. 600,000 |
| 1,200,001 – 2,200,000 | 100,001 – 183,333 | Rs. 6,000 + 11% of amount exceeding Rs. 1,200,000 |
| 2,200,001 – 3,200,000 | 183,334 – 266,667 | Rs. 116,000 + 23% of amount exceeding Rs. 2,200,000 |
| 3,200,001 – 4,100,000 | 266,668 – 341,667 | Rs. 346,000 + 30% of amount exceeding Rs. 3,200,000 |
| Above 4,100,000 | Above 341,667 | Rs. 616,000 + 35% of amount exceeding Rs. 4,100,000 |
According to official figures, Pakistan’s salaried class paid around Rs. 420 billion in taxes during the first nine months of FY2025-26, making it one of the largest contributors to the national tax collection despite representing a relatively small portion of the workforce.
Why Salaried Workers Pay More
One of the main reasons salaried individuals contribute such a large share of income tax is the withholding tax system.
Employers are legally required to deduct income tax directly from employee salaries before payments are made, leaving little room for tax avoidance or underreporting.
As a result, compliance among salaried workers remains close to 100 percent.
On the other hand, many small businesses and retailers continue to operate largely in cash-based environments, making tax enforcement more challenging and often resulting in lower effective tax collection.
Comparing Salaried Employees and Retailers
| Feature | Salaried Class | Small Traders / Retailers |
| Tax Basis | Net salary income | Gross annual turnover |
| Tax Structure | Progressive tax rates up to 35% | Fixed turnover tax of around 1% |
| Collection Method | Automatic deduction through employers | Self-declared under simplified scheme |
| Compliance System | Fully documented payroll records | Simplified reporting requirements |
| Income/Turnover Scope | Applies to all salary levels | Generally available up to Rs. 200 million turnover |
| Monitoring & Enforcement | High visibility through employers | Depends on registration and declarations |
| Additional Tax Burden | Subject to withholding taxes on utilities, fuel, mobile services, and consumption | Also subject to indirect taxes, but under a different compliance framework |
Growing Debate Over Tax Fairness
The difference between the two systems has triggered renewed debate over tax fairness and burden sharing.
Salaried individuals operate within a fully documented system where taxes are deducted automatically every month. There is little flexibility, negotiation, or opportunity to delay payments.
In contrast, governments have historically relied on incentives to encourage traders and retailers to join the tax net. Measures such as lower tax rates, simplified filing procedures, audit protections, and adjustable withholding taxes have often been used to improve compliance.
Many salaried workers argue that they do not receive similar concessions despite being among the most consistent taxpayers in the country.
Beyond Income Tax
The tax burden on salaried individuals extends beyond income tax deductions.
They also pay a range of withholding and indirect taxes on electricity bills, mobile phone services, fuel purchases, banking transactions, and consumer goods.
Since these taxes are linked to consumption, they often place additional pressure on middle-income households, especially during periods of high inflation and rising living costs.
Budget Expectations
With the federal budget for FY2026-27 just around the corner, many salaried taxpayers are hoping for meaningful relief measures.
Tax experts believe that reducing the burden on documented taxpayers could improve confidence in the tax system and encourage broader compliance across the economy.
Whether the government introduces significant tax relief or maintains the current structure will become clear when the budget is announced next week. For many salaried workers, the upcoming budget is being seen as a key test of how fairly the tax burden is distributed across different sectors of the economy.
