Salaried Class Hit Hard as Govt Tax Deductions Rise in 2025

The salaried class in Pakistan is facing growing financial pressure as tax deductions on monthly paychecks have climbed sharply this fiscal year. Despite no significant increase in salaries, millions of employees across the public and private sectors are now taking home less due to higher government deductions at source.

Take-Home Pay Shrinks

Since July, employees earning between PKR 100,000 and PKR 300,000 per month have reported noticeable increases in income-tax cuts. The deductions, quietly revised under the 2024-25 Finance Bill, have turned modest pay raises into negligible relief.

“I got a five-percent salary increment this year, but my net pay dropped instead of rising,” said Muhammad Asif, a mid-level bank officer in Lahore. “Every month, I feel like the government is getting richer while we’re getting poorer.”

Financial analysts confirm that the tax-to-salary ratio for middle-income earners has risen faster than inflation. The imbalance is particularly severe in urban centers, where the cost of housing, utilities, and food already consumes most of a worker’s monthly income.

Unequal Burden on the Compliant

Experts say the salaried segment remains the government’s most reliable source of revenue and perhaps, its easiest target. Salaried employees cannot delay or hide income because taxes are deducted automatically through the payroll system.

“This is the tragedy of our system,” noted economist Dr. Sara Malik. “Those who earn transparently end up paying the highest share. Meanwhile, informal sectors — retailers, small traders, and real-estate investors  contribute very little.”

Government officials, however, defend the collection policy. According to a senior FBR representative, the revised tax framework aims to “stabilize revenue without placing excessive pressure on low-income groups.” But data shows that the heaviest impact has fallen squarely on the middle class — the same segment already struggling with high inflation and stagnant wages.

Inflation Compounds the Pain

Pakistan’s inflation rate continues to hover around double digits. Daily essentials, rent, and fuel prices have all increased, leaving little room for adjustment. With higher taxes reducing disposable income, many households are cutting back on savings, healthcare, and education expenses.

A Rawalpindi-based IT engineer described the financial strain plainly:

“You can’t plan your future anymore. Every time your salary grows a little, new taxes eat up the difference. It’s like running on a treadmill that keeps speeding up.”

For many, what used to be a stable middle-class lifestyle is now turning into a monthly survival battle.

Need for Broader Tax Reforms

Policy analysts argue that Pakistan’s tax system suffers from structural imbalance. More than 60 percent of total income-tax revenue reportedly comes from the salaried and corporate sectors while vast informal and high-profit areas remain under-taxed.

Economists urge the government to expand the tax base rather than relying repeatedly on compliant segments. Suggestions include digitizing retail transactions, integrating property databases, and improving tax literacy.

“The system must reward honesty, not punish it,” said tax consultant Faraz Ahmed. “When compliant citizens feel overburdened, overall compliance drops — and that’s a dangerous trend for any economy.”

Government Response

Officials inside the Ministry of Finance have hinted that next year’s budget may review the tax brackets and introduce limited deductions for health insurance and education. However, no formal policy document has been issued yet.

Meanwhile, unions representing salaried professionals have demanded that the government publish a transparent breakdown of tax utilization arguing that citizens deserve to know where their money goes.

Outlook

As 2025 draws to a close, Pakistan’s salaried workforce stands at a crossroads. They remain the backbone of formal tax compliance, yet they continue to feel squeezed by policies that overlook cost-of-living realities.

Without structural reforms and balanced taxation, experts warn, the gap between take-home pay and basic expenses will keep widening eroding morale, savings, and the very foundation of Pakistan’s middle class.

“We don’t want exemptions,” said Asif, the bank officer. “We just want fairness.”

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