By Staff Reporter
ISLAMABAD: The government is preparing to reduce the income-tax burden on salaried individuals in the upcoming federal budget while leaving salaries and pensions unchanged, a step aimed at extending comparable fiscal relief to workers in both the public and private sectors, Dawn newspaper reported on Monday.
Finance Minister Muhammad Aurangzeb has told colleagues he wants to lower tax rates and, where possible, raise the taxable-income threshold for the salaried class, according to people familiar with the discussions. The move would acknowledge the group’s disproportionately large contribution to government revenue compared with retailers, wholesalers, exporters and real-estate players.
Instead of granting across-the-board pay increases, the government intends to use the resulting fiscal savings to deliver tax relief. “There is no reason to increase salaries if it pushes employees into higher taxable income brackets, leaving government employees with little to no increase in take-home pay,” an official said. With lower rates and a higher threshold, the official added, public-sector workers “would remain net beneficiaries even without a salary increase.” Government employees “would not be worse off financially,” the official said. “That is neither the idea nor the intention.”
The approach marks a shift after four years of rapid growth in public-sector pay. Government salaries have risen more than 60 percent over that period, even as private-sector wages have largely stagnated amid high inflation and subdued economic growth.
Officials at the tax-policy office and several independent consultancies are drafting multiple options for the budget, which will be reviewed with an International Monetary Fund mission when formal consultations begin on May 15. The development program may be scaled back further to a skeleton allocation, though final decisions on income tax, salaries and spending will depend on the outcome of those talks.
Last year, the federal government shouldered an additional Rs170 billion ($610 million) from salary and pension increases; the impact on provincial budgets was more than double that amount. Even a portion of those savings could meaningfully lighten the personal-income-tax load, one official noted.
Salaried taxpayers contributed more than Rs425 billion in the first nine months of the current fiscal year—more than double the roughly Rs200 billion paid by the real-estate sector and well above the combined collections from wholesalers, retailers and exporters. The salaried class has borne the largest share of the tax take while also absorbing higher household costs from inflation, particularly since the onset of the Middle East crisis.
The government has carved out an exception for employees working on projects funded through the Public Sector Development Programme. Last month it announced a 20 percent to 35 percent increase in minimum salaries for those workers, effective July 1, 2026—the first revision since April 1, 2022. Unlike regular government employees, PSDP staff had previously seen annual increments cut by as much as 28 percent and maximum salaries reduced by 14 percent, according to a finance ministry memorandum. Over the same four-year span, salaries for other federal employees, including those in the finance ministry itself, rose more than 60 percent. Final budget parameters remain fluid until the IMF discussions conclude.
Copyright © 2021 Independent Pakistan | All rights reserved
