The Growing Burden of Salary Taxation in Pakistan:

Salaried people in Pakistan have lately found themselves mostly responsible for the tax load of the nation. The Federal Board of Revenue (FBR)’s revenue collecting, the relative tax contribution of salaried individuals compared to other taxpayer segments, and recent legislative changes that have further increased this load including the withdrawal of tax credits on mutual fund investments and the introduction of additional surcharges.

Current Taxation Changes:

Tax Slabs and Rates

Revised tax rates for salaried individuals increase the burden on mid-to upper-income earners. This reduces their disposable income, impacting their ability to save or invest due to higher effective tax rates.

Withdrawal of Tax Credits from Mutual Fund

Removing mutual fund tax credits limits salaried persons’ options to reduce taxes through strategic investments. Moreover, dividends are taxed at 25% when over half of fund income comes from profit on debt, discouraging capital market activity.

Surcharges

Ongoing rate hikes on salaried earners, without widening the tax base to include low-compliance sectors, worsen perceptions of inequity. Though labeled as progressive, these surcharges add to the burden on already tax-compliant professionals.

Formula : Read slab here
MONTHLY
Monthly Income
Monthly Tax
Salary After Tax
YEARLY
Yearly Income
Yearly Tax
Salary After Tax

Tips to Reduce Salaried Individuals' Tax Burden:

Choose Vehicle Under Maintenance for
Company

As a salaried individual, smart structuring of your compensation package and tax benefits awareness can significantly reduce your tax bill. Opting for a company-maintained car instead of car allowance means only 5% or 10% of the value is taxed based on usage, with no tax on employer-paid fuel, maintenance, or operations.

Medical Allowances and
Insurance

Tax-free employer medical reimbursements and insurance benefits are allowed; otherwise, allowances up to 10% of basic salary remain exempt. Convert fixed allowances into reimbursements where possible, as reimbursements are tax-free. Adjust your salary split to raise this threshold, possibly by merging rent and utility into your basic pay.

Convert Your Provident Fund into VPS and Save Twenty Percent

As per Rule 103(1)(aa) of the Income Tax Rules, 2002, shifting your provident fund into a Voluntary Pension Scheme (VPS) is a highly effective tax-saving tool. This lesser-known option can lower your annual income tax by up to 20%, offering significant savings through smart long-term financial planning.

Conclusion:

In light of the growing tax burden on salaried individuals, it has become more important than ever to understand tax planning opportunities, salary structuring techniques, and practical ways to reduce tax liabilities within the legal framework. By proactively managing these elements, salaried professionals can protect their income, plan their finances more effectively, and make the most of available tax benefits.

We would be happy to guide you through these complexities in more detail. If you wish to gain deeper insights or arrange a dedicated workshop for your team on salary tax planning, recent tax law changes, and practical saving strategies, please feel free to get in touch with us.

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