The optics of relief for the masses

The bulk of FBR’s tax revenue is generated from tax on income (50% of tax revenue) and sales tax (32% of tax revenue). The former falls in the captive tax-compliant category. The latter is deeply regressive, directly impacting the lowest-income segments and worsening economic inequality. This leaves everyday citizens bearing a disproportionate brunt of the state’s financial burden. The budget serves as a reminder that the vast majority of Pakistanis in the middle of the social spectrum will continue to bear the cost of government missteps and the inefficiencies of inadequate physical and social infrastructure providers, in addition to the fallout of the volatile global situation and tensions with Afghanistan. In the fiscal year ahead, their relentless struggle to make ends meet and to provide a decent life for their families will remain all-consuming. The proposed budget offers the salaried class a modest three to five per cent reduction in tax liability, applicable only for those earning at least three times the taxable monthly income threshold of Rs50,000. While the relief may be meaningful for its beneficiaries, excluding poor and lower-middle-class taxpayers, who arguably need support even more, is difficult to justify. Unless policymakers attach value to retaining a larger number of lower-income taxpayers in the tax net, the rationale of this exclusion remains unclear. Pakistan’s income tax compliance remains dismally low. A wide gap persists between the number of registered taxpayers and those who actually pay taxes. By some estimates, fewer than 5pc of adults in Pakistan pay income tax. Enforcing compliance is challenging in a cash-dominated economy with a vast informal sector and limited documentation. Modest tax cuts offer limited comfort as inflation, fuel costs and economic uncertainty continue to squeeze middle- and lower-income households In contrast, salaried employees are effectively captive taxpayers because their taxes are deducted at source. Meanwh