Tax collection from Pakistan’s salaried class up 55% in FY25

Pakistan collected 18% of its PKR 3.38 trillion withholding tax (WHT) from the salaried class in fiscal year 2024-24, reigniting the debate that the income group was shouldering an undue burden of the country’s revenue collection.

The Federal Board of Revenue’s (FBR) annual report showed an increase in withholding tax (WHT) collections during fiscal year 2024-25, which rose 23.5% from Rs. 2.74 trillion a year earlier.

Despite the sharp increase, the share of WHT in total income tax receipts declined slightly to 59%, compared with 60% in FY 2023-24. The marginal dip reflects faster growth in other tax components, such as advance tax and collection on demand, even as WHT remains the largest contributor to overall income tax revenue.

Withholding tax collection from the salaried class has jumped to second place in the last fiscal year ended June 30, up from fourth place in the preceding year.

According to the FBR, the top 15 sources of WHT revenue remained largely unchanged from the previous fiscal year, with one major shift: salaries became the second-largest contributor to WHT collection. Salaries saw the most significant year-on-year jump, with revenue increasing by 55%, or PKR 214.2 billion, reaching PKR 605.6 billion in FY 2024-25, compared to PKR 391.4 billion a year earlier.

The surge was driven by a major tax policy adjustment that reduced the number of income tax slabs and increased rates across each category. The move led to higher deductions at source, particularly from middle- and upper-income earners.

Apart from salaries, other major contributors to WHT growth included contracts, imports, telephone services, and exports, each showing double-digit increases. Of the 15 key WHT components, 14 recorded positive growth, with only bank interest and securities showing a minor decline of 1.6%.

Data also showed that the five largest WHT categories accounted for 71.1% of total WHT revenue, underscoring the continued concentration of tax collection in a few major sectors.

Direct tax shows strong growth despite refunds

The FBR’s overall direct tax collection reached PKR 5.79 trillion in FY 2024-25, compared to PKR 4.53 trillion in the previous year — a growth of 27.8% year-on-year. Direct taxes remained the primary revenue stream, contributing 49.3% of total FBR tax collection.

The FBR noted that impressive growth came despite issuing refunds of Rs. 55.5 billion to taxpayers. The board also achieved 99.5% of its direct tax collection target, reflecting improved administrative efficiency and compliance monitoring.

Direct taxes are collected under four sub-heads — Income Tax, Workers Welfare Fund/Workers Profit Participation Fund, and Capital Value Tax. Within income tax, four main components drive collection: withholding taxes, advance taxes, payments with returns, and collection on demand.

A disaggregated review of income tax components suggested stronger field enforcement and recovery actions during FY 2024-25. While withholding and advance tax receipts slightly declined toward year-end, the “collection on demand” category rose, indicating more proactive measures against tax defaulters and delayed filers.

Reliance on WHT persists

Economists and tax policy experts view the latest figures as both a sign of fiscal progress and a reminder of Pakistan’s structural taxation challenges.

“The FBR’s performance this year is commendable, particularly in achieving nearly 100% of its direct tax target amid a difficult economic environment,” said an analyst “However, the heavy reliance on withholding taxes — especially from salaried and formal sectors — continues to expose the narrowness of Pakistan’s tax base.”

Analysts warn that the concentration of WHT collection among a few sectors limits long-term fiscal sustainability. “A 55% increase in tax from salaries shows how the burden is disproportionately falling on compliant taxpayers,” said the analyst . “The challenge now is to expand documentation in the informal economy and bring high-income non-filers into the net.”

Experts also note that while enforcement improvements boosted “collection on demand,” such gains may not be sustainable without deeper reforms in tax administration, digital audit systems, and taxpayer facilitation.

“FBR’s progress is real,” he added, “but broadening the base and improving voluntary compliance will determine whether this momentum can be sustained beyond FY 2025.”