Soft target

The current federal budget for the coming fiscal year includes a pay increase for government employees, aimed at improving their living standards and combating inflation. However, this increase is accompanied by new tax measures that actually reclaim a significant part of the salary increase. Unlike other sectors where tax evasion is more possible, the salaries of public sector employees are well documented and easier to regulate, making them a reliable contributor to tax revenues.

The tax strategy in Pakistan’s budget includes adjustments in income tax slabs and the introduction of new allowances, which will lead to higher direct tax deductions on the higher salaries of government employees. In addition, increases in VAT or sales tax on goods and services consumed by these employees indirectly reclaim part of the salary increases. Government employees serve as a soft target for tax revenue due to the easy taxation of their documented incomes. This helps the government achieve its tax revenue targets, albeit at the cost of reducing the net benefits of salary increases for these workers.

Dr. Intikhab Ulfat