ISLAMABAD: The Salaried Class Alliance Pakistan has called for a revision of tax slabs, an increase in exemption limits, the reintroduction of key deductions, and a focused effort to bring undocumented sectors into the tax net—aimed at creating a fairer and more balanced taxation system.
In a letter addressed to Finance Minister Senator Muhammad Aurangzeb, the Alliance noted that tax collection from the salaried segment has surged from Rs 76 billion in 2019 to an expected Rs 570 billion in 2025.
While appreciating the government’s efforts to enhance revenue collection, the Alliance emphasized that the salaried class has been disproportionately impacted by this increase.
FY26 budget: salaried class urges govt to raise tax exemption limit to Rs1.2 million
“Salaried individuals are already struggling with stagnant wages amid historically high inflation, making it difficult to maintain a reasonable standard of living,” the letter stated.
It further pointed out that the removal of tax credits and deductible allowances under the Finance Act, 2022—including those for investments in shares, mutual funds, Sukuk, life insurance, and health insurance—has placed additional strain on salaried taxpayers. The situation has worsened due to further tax hikes introduced through the Finance Act, 2024, including a 10% additional surcharge.
“This has forced many in the salaried class to seek employment abroad for better job opportunities and a higher standard of living,” the Alliance added. It also cited the elimination of deductible allowances on profits from loans by scheduled banks and SECP-regulated non-banking financial institutions as a further erosion of available financial relief.
While a 10% medical allowance and its reimbursement remain exempt under Clause 139 of Part I of the Second Schedule of the Income Tax Ordinance, 2001, the Alliance highlighted that this exemption has not kept pace with inflation. Moreover, salaried individuals are not permitted to deduct employment-related expenses from their taxable income, unlike other taxpayer categories. The annual exemption threshold of Rs 600,000 has also remained unchanged for years, despite soaring inflation.
The Alliance shared a comparative analysis of tax regimes in peer economies such as India, Bangladesh, Vietnam, and Nepal, showing that Pakistan’s system—with its lower exemption limits and limited deductions—places a heavier burden on salaried taxpayers, making it regressive.
It stressed that the salaried class, being the most transparent and tax-compliant segment, continues to bear the brunt of tax collection while a significant portion of the economy remains undocumented.
“It is imperative for the government to intensify efforts to widen the tax base, bringing undocumented sectors—such as real estate, wholesale trade, and informal businesses—into the formal taxation framework. This will alleviate the burden on compliant taxpayers and support sustainable revenue growth,” the Alliance stated.
The Alliance has submitted the following recommendations to the Finance Ministry for consideration at the time of
finalizing the Finance Budget for 2025-2026: (i) Revise Tax Slabs: Adjust the tax slabs for salaried individuals to align with the prevailing cost of living and global best practices or to least reinstate the tax rates to pre-Finance Act 2024 position including removal of additional surcharge of 10 percent. Surcharge is of penal nature which should not be imposed on the compliant taxpayers ;(iii) Increase Medical Allowance Exemption: Raise the medical allowance exemption limit from 10%
to 25% to reflect current healthcare costs ;(iv) introduce commuting and related allowances: Allow a 15% deductible allowance to cover commuting and other unavoidable employment-related expenses ;(v) enhance annual exempt threshold: Increase the current exempt threshold from Rs 600,000 to at least Rs 1,200,000, acknowledging the erosion of purchasing power due to inflation.
The Alliance urged the Finance Minister and the Federal Board of Revenue (FBR) to consider these pressing issues in the upcoming federal budget for 2025–2026. It expressed hope that under the Finance Minister’s leadership, meaningful reforms will be introduced to protect the financial well-being of the salaried class while ensuring fiscal responsibility.
Copyright Business Recorder, 2025
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