Government plans tax relief for Pakistan's salaried class, gradual end to super tax on corporations

Pakistan plans to reduce taxes on the salaried class and phase out the super tax on large corporations as part of a broader effort to ease the burden on compliant taxpayers and revive investment, Federal Board of Revenue Chairman Rashid Mahmood Langrial said Thursday.

Speaking at an economic dialogue hosted by the Pakistan Business Council, Langrial said Prime Minister Shehbaz Sharif has instructed the FBR to lower income tax rates for salaried workers in the upcoming federal budget. He added that the government has also initiated work on reducing and eventually eliminating the super tax imposed on major companies and high-turnover businesses.

“The prime minister has directed us to provide relief to the salaried class,” Langrial said. “We are starting work on reducing their tax rates in the next budget.”

For years, Pakistan’s salaried employees have complained of disproportionately high tax deductions, while large segments of the economy, including retail, real estate and professional services, remain lightly taxed or entirely undocumented.

Salary earners currently account for a significant portion of direct tax revenue, despite representing only a small fraction of the overall workforce.

Langrial said the manufacturing and corporate sectors also face excessive tax pressures due to the super tax and high corporate tax rates. “We know there is no justification for taxes like the super tax, and we are working to reduce them from whatever fiscal space becomes available to us,” he said.

FBR sources said the federal government has agreed in principle to abolish the super tax in phases, beginning with the next fiscal year. The plan, they said, will also be discussed with the International Monetary Fund as part of upcoming economic policy talks.

Officials say the goal is to stimulate investment by reducing the effective tax burden on large firms.

National Coordinator of the Special Investment Facilitation Council, Lt. Gen. Sarfraz Ahmed, acknowledged the business community concerns regarding Pakistan’s high tax environment.

Langrial added that expanding the tax base is essential for lowering rates sustainably.

“The more taxpayers we bring into the system, the more we can reduce tax rates,” he said.

Langrial noted that Pakistan’s tax-to-GDP ratio remains low and said the government has finalized a roadmap to raise it to 18% by fiscal year 2028.

He pointed out that tax evasion in the services sector remains widespread, with more than 90% of hospitals accepting only cash payments and only about 150,000 doctors registered with the FBR. Their average annual tax payment — roughly PKR 2 million — is far below what their income levels suggest, he said.

Despite the challenges, Langrial said tax rationalization for both individuals and businesses remains a priority for the government as it prepares next year’s budget.

The FBR collected a record PKR 545 billion in income tax from salaried individuals in FY2024-25, making them the highest contributors to the national tax collection for direct taxes, even more than the combined tax collected from exporters and retailers.

The contribution from the salaried class was over three times higher than that of exporters, who paid PKR 180 billion despite earning in foreign currency. Retailers, under the Income Tax Ordinance’s sections 236G and 236H, contributed PKR 62 billion, which is eight times less than the tax paid by salaried individuals.