How Much Tax Pakistani Citizens Pay And Where Government Spends It?

Rupees 20 million (2 Crore) were spent on special repair of Bathrooms in Prime Minister House and rupees 10 million (1 Crore) was spent on changing of carpets.

Prime Minister house also spends around 10 million Rupees on Tea in one year. The daily expense of PM house is around 2.306 million rupees. (23 lacs every day).

This money is actually hard earned money of common people of Pakistan.

This money comes from the revenue collected by FBR (Federal Board of Revenue) primarily through taxes imposed on common people, and companies of Pakistan. Other ways of making money include interest, trading profit etc. but the most primary way of collecting revenue is tax collection. This is the money that government uses to finance its “activities”.

75% of tax revenue is collected through indirect taxes and 25% through direct taxes in Pakistan. Indirect tax is collected on goods and services rather than on income or profits. While direct tax, such as income tax, which is collected on the income or profits of the person and companies.

Different Kind of Taxes

Direct and Indirect Tax Ratio in Pakistan

Two basic type of taxes are direct and indirect taxes. Direct tax is imposed on individuals and the corporations on total money they make in a year. While indirect tax is imposed on every single person regardless of their income or profit.

Rate of indirect tax in Pakistan is 60% as compared to 40% of direct tax. This is creating huge economic inequality in Pakistan.

Below is the rate of gradual increase in indirect tax rate since 2006 provided by theglobaleconomy

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Increase in indirect tax means that the poorer people are forced to pay more taxes as compared to rich people.

Surprisingly the contribution of poorest 10% of population in Pakistan was 17% of their total income through indirect taxes which includes GST (General Sales Tax), Central Excise Duty (CED) and Customs Duty. The richest 10% contributed only 10% of their total income in the total indirect tax revenue.

An example of indirect tax collection in Pakistan is through the electricity and telecommunication bills. If your electricity bill is 20000, you are paying 13000 for the cost of electricity used and remaining 7000 rupees are collected in terms of 14 different indirect taxes. That means a total of 35% tax is collected on electricity bills.

If your landline telephone bill (PTCL) is 3000, the actual cost of the service is 2100 and remaining 900 is tax. Out of rupees 1000 used on your mobile phone, you pay 380 towards indirect taxes.

The developing economies in the world keep their indirect taxes as low as possible and direct taxes as high as possible. This would make the richer person pay more taxes and the burden of taxes is reduced on poor people. A successful taxation system reduces the wealth gap between rich and the poor and ensures the distribution of income and wealth. The elite class of Pakistan has been given all the privileges so they pay less direct tax and the legislation makes the poor people pay more through indirect taxes.

Direct taxes are collected on the income and profit of individuals and Corporations. Below is the table explaining the amount/percentage of tax that an individual should pay in Pakistan.

Tax on Salaried Individuals

Taxable income
Tax Rate (%)
Less than Rs.400,000
0%
Between Rs.400,000 and Rs.500,000
2% of the amount exceeding Rs.400,000
Between Rs.500,000 and Rs.750,000
Rs.2,000 + 5% of the amount exceeding Rs.500,000
Between Rs.750,000 and Rs.1,400,000
Rs.14,500 + 10% of the amount exceeding Rs.750,000
Between Rs.1,400,000 and Rs.1,500,000
Rs.79,500 + 12.5% of the amount exceeding Rs.1,400,000
Between Rs.1,500,000 and Rs.1,800,000
Rs.92,000 + 15% of the amount exceeding Rs.1,500,000
Between Rs.1,800,000 and Rs.2,500,000
Rs.137,000 + 17.5% of the amount exceeding Rs.1,800,000
Between Rs.2,500,000 and Rs.3,000,000
Rs.259,500 + 20% of the amount exceeding Rs.2,500,000
Between Rs.3,000,000 and Rs.3,500,000
Rs.359,500 + 22.5% of the amount exceeding Rs.3,000,000
Between Rs.3,500,000 and Rs.4,000,000
Rs.472,000 + 25% of the amount exceeding Rs.3,500,000
Between Rs.4,000,000 and Rs.7,000,000
Rs.597,000 + 27.5% of the amount exceeding Rs.4,000,000
More than Rs.7,000,000
Rs.1,422,000 + 30% of the amount exceeding Rs.7,000,000

Tax on Self-Employed Individuals

Taxable income
Tax Rate (%)
Less than Rs.400,000
0%
Between Rs.400,000 and Rs.500,000
7% of the amount exceeding Rs.400,000
Between Rs.500,000 and Rs.750,000
Rs.7,000 + 10% of the amount exceeding Rs.500,000
Between Rs.750,000 and Rs.1,500,000
Rs.32,000 + 15% of the amount exceeding Rs.750,000
Between Rs.1,500,000 and Rs.2,500,000
Rs.144,500 + 20% of the amount exceeding Rs.1,500,000
Between Rs.2,500,000 and Rs.4,000,000
Rs.344,500 + 25% of the amount exceeding Rs.2,500,000
Between Rs.4,000,000 and Rs.6,000,000
Rs.719,400 + 30% of the amount exceeding Rs.4,000,000
More than Rs.6,000,000
Rs.1,319,500 + 35% of the amount exceeding Rs.6,000,000

Where the tax money is Spent?

A budget estimates the income and expenditure of the Government. Each year Finance minister announces the budget in June.

The estimated expenses of Government of Pakistan were rupees 4394 billion and the target for collection of taxes were rupees 3621 billion for fiscal year 2016-2017.

  • 860 billion rupees were allocated to defense.
  • 380 billion rupees were allocated to energy projects.
  • 79.5 billion rupees for higher education.
  • 188 billion rupees for construction of highways, road, bridges.
  • 78 billion rupees for railways (buying new coaches etc)
  • Rs. 842 million allocated to PM Secretariat.

Rs. 599 million had been allocated for employees-related expenses, Rs. 229 million for their salary, Rs. 110 million for salary of officers, Rs. 370 million for allowances, Rs. 125 million for operating expenses, Rs. 75 million for grants, subsidies and written-off loans.

  • 2 Crore (20 million) on Special maintenance of Bathrooms in PM House (Source)
  • 1 Crore (10 million) on changing of carpets. (Source)
  • Rs 863 million allocated to The President House.

Rs. 105 million has been earmarked for salary of staff, Rs. 82 million for salary of officers, Rs. 378 million for allowances, Rs. 142 million for operating expenses, Rs. 88 million for grants, subsidies and written-off loans, and Rs. 20 million for maintenance.

Pakistan spends only 2.6 percent of its GDP on health, which is the lowest in South Asian countries with comparative spending of 7.4 percent in Afghanistan, 4.2 percent in India, 4 percent in Sri Lanka and 5.6 percent in China.

Though the number of Pakistani Citizens paying direct tax is very small and people find ways to evade tax payment. But the government still collects billions of rupees from poor Pakistani people thought indirect tax. In return we expect to be provided with basic facilities like education, healthcare and security.

What are your thoughts about the current tax collection system and its performance?

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