Salaried Class Faces Major Tax Hike as Government Increases Deductions from Monthly Incomes

The Federal Board of Revenue (FBR) reported a substantial rise in withholding tax collections from the salaried class during the fiscal year 2024–25, reaching Rs. 605.593 billion compared to Rs. 391.362 billion in 2023–24, showing an exceptional increase of 54.7 percent. This surge is largely attributed to policy changes, including a reduction in income tax slabs and higher tax rates for each slab, which significantly boosted tax revenue from salaries.

According to the FBR’s latest report, the share of withholding taxes in total direct tax collection stood at 59 percent in 2024–25, slightly down from 60 percent in the previous year. Overall, total withholding tax collection rose to Rs. 3,381.5 billion, up from Rs. 2,739.1 billion in 2023–24, marking a 23.5 percent year-on-year growth.

In addition to salaries, strong growth was recorded in other key withholding tax categories. Tax collection from contracts increased by 39 percent, reaching Rs. 737.715 billion compared to Rs. 530.724 billion a year earlier. Taxes collected through electricity bills also rose by 11.2 percent, totaling Rs. 144.371 billion in 2024–25 against Rs. 129.815 billion in 2023–24.

The report highlighted that the highest growth came from the salaried segment, which now accounts for the second-largest share in total withholding tax revenue. This was followed by notable increases in collections from contracts, imports, telecommunications, and exports.

Major withholding tax components collectively contributed around 71.1 percent of total collections. Out of the top 15 revenue sources, 14 recorded positive growth, while only the category of bank interest and securities saw a decline of 1.6 percent.

The overall performance reflects a strong improvement in Pakistan’s withholding tax system, driven by enhanced compliance, structural reforms, and revised income tax policies aimed at increasing revenue from key sectors.