Tax Discrimination in Pakistan: A Grim Reality for the Salaried Class

The tax landscape in Pakistan has become increasingly burdensome for the salaried class, with policies that starkly contrast with the practices observed in developed nations. Over the years, the Federal Board of Revenue (FBR) and the Government of Pakistan have systematically withdrawn virtually all deductions and allowances that were once available to salaried individuals. This has culminated in a situation where salaried taxpayers are compelled to pay taxes on their gross income, with no relief in sight. This article delves into the discriminatory nature of Pakistan's tax policies, comparing them with the more equitable systems in European countries, and highlighting the severe implications for the salaried class.

The Erosion of Deductions and Allowances

Historically, salaried individuals in Pakistan enjoyed certain deductions and allowances that provided some measure of relief from the tax burden. These included allowances for medical expenses, education, and housing, among others. However, over time, these benefits have been systematically eroded. The current tax regime imposes taxes on the gross income of salaried individuals, with negligible deductions or allowances. This approach is in stark contrast to the tax systems in European countries, where taxpayers benefit from a wide range of deductions and allowances.

Comparative Analysis: Pakistan vs. Europe

In European countries, where tax rates are comparable to those in Pakistan—often reaching 45% to 50%—the tax burden is mitigated by various allowances and deductions. For instance, European taxpayers can deduct expenses related to healthcare, education, housing, and charitable contributions. Additionally, there are robust social safety nets, including health insurance coverage, unemployment benefits, and layoff compensations, which significantly alleviate the financial strain on individuals.

Conversely, in Pakistan, the absence of such allowances and social safety nets exacerbates the financial burden on the salaried class. Despite paying high taxes, individuals receive little in return in terms of social services or financial relief. The tax authorities, instead of providing support, often add to the distress by issuing punitive notices and imposing penalties for any perceived non-compliance.

Taxation at Gunpoint: A Modern-Day Robbery

The oppressive tax regime in Pakistan has reached a point where it can be likened to robbery rather than a legitimate taxation policy. The government, through the FBR, imposes taxes on the salaried class with such severity that it feels akin to extortion at gunpoint. This aggressive approach to taxation leaves individuals with no choice but to comply, stripping them of their hard-earned income without offering any corresponding benefits or relief.

The situation is further aggravated by the behavior of the tax authorities, who employ intimidating tactics to ensure compliance. For those who fail to meet their tax obligations—often due to circumstances beyond their control, such as job loss—the repercussions are severe. Instead of receiving understanding or support, these individuals are subjected to penalties, fines, and continuous harassment. This draconian approach undermines the very principles of justice and fairness that a tax system should uphold.

The Psychological and Financial Impact

The current tax regime has profound psychological and financial implications for the salaried class in Pakistan. The relentless pursuit of tax revenue by the FBR, often through aggressive and intimidating tactics, places significant stress on individuals. For those who have been laid off, the situation is even more dire. Instead of receiving support, they face further harassment from tax authorities, who demand explanations and impose penalties for the inability to pay taxes.

This approach is not only unjust but also counterproductive. It discourages compliance and erodes trust in the tax system. In contrast, in European countries, the provision of allowances and benefits fosters a sense of fairness and encourages voluntary compliance. Taxpayers are more willing to fulfill their obligations when they see tangible benefits in return.

Policy Recommendations

To address the glaring inequities in Pakistan's tax system, several policy reforms are necessary:

1. Reintroduction of Deductions and Allowances: The government should reinstate deductions and allowances for expenses such as medical bills, education, and housing. This would provide immediate relief to the salaried class and enhance the perception of fairness in the tax system.
2. Implementation of Social Safety Nets: Establishing robust social safety nets, including health insurance coverage and unemployment benefits, is crucial. These measures would mitigate the financial impact of layoffs and other adverse events, thereby providing much-needed security to individuals.
3. Taxpayer Support and Education: The FBR should adopt a more supportive approach towards taxpayers, offering guidance and assistance rather than punitive measures. Educational campaigns to inform taxpayers about their rights and obligations can also enhance compliance and reduce the adversarial relationship between taxpayers and the authorities.
4. Simplification of the Tax System: Simplifying the tax system to make it more transparent and easier to navigate would reduce the administrative burden on taxpayers and improve compliance rates.

The current tax policies in Pakistan are disproportionately harsh on the salaried class, stripping them of any meaningful relief and subjecting them to an onerous tax burden. This situation, where taxes are imposed with a level of severity that feels akin to extortion, is not only unjust but also damaging to the social fabric. In stark contrast, European countries offer a more balanced approach, with numerous allowances and social benefits that mitigate the impact of high tax rates. It is imperative for the Government of Pakistan and the FBR to undertake comprehensive tax reforms that reintroduce deductions and allowances, establish social safety nets, and adopt a more supportive approach towards taxpayers. Only then can we hope to create a fair and equitable tax system that fosters compliance and supports the financial well-being of the salaried class.

By highlighting the disparities and suggesting concrete reforms, this article aims to underscore the urgent need for a more just and equitable tax system in Pakistan. The current policies not only impose an undue burden on the salaried class but also undermine trust in the tax system, ultimately hindering economic progress and social stability.