Pakistan’s Tax Assault on the Salaried Class: A Decade of Exploitation

The Devastating Impact of Progressive Taxation Amid Hyperinflation

Author

Zahid Asghar

Published

June 8, 2025

This analysis reveals the shocking reality of Pakistan’s tax policy on salaried individuals over the past five years. Combined with one of the highest historical inflation rates reaching 37% in 2023, the salaried class faces a double burden: higher nominal tax rates and severely eroded purchasing power.

Tax Calculation Functions

Code 
# Tax calculation functions for different years
calculate_tax_2025 <- function(income) {
  case_when(
    income <= 600000 ~ 0,
    income <= 1200000 ~ (income - 600000) * 0.05,
    income <= 2200000 ~ 30000 + (income - 1200000) * 0.15,
    income <= 3200000 ~ 180000 + (income - 2200000) * 0.25,
    income <= 4100000 ~ 430000 + (income - 3200000) * 0.30,
    TRUE ~ 700000 + (income - 4100000) * 0.35
  )
}

calculate_tax_2024 <- function(income) {
  case_when(
    income <= 600000 ~ 0,
    income <= 1200000 ~ (income - 600000) * 0.025,
    income <= 2400000 ~ 15000 + (income - 1200000) * 0.125,
    income <= 3600000 ~ 165000 + (income - 2400000) * 0.225,
    income <= 6000000 ~ 435000 + (income - 3600000) * 0.275,
    TRUE ~ 1095000 + (income - 6000000) * 0.35
  )
}

calculate_tax_2020 <- function(income) {
  case_when(
    income <= 600000 ~ 0,
    income <= 1200000 ~ (income - 600000) * 0.05,
    income <= 1800000 ~ 30000 + (income - 1200000) * 0.10,
    income <= 2500000 ~ 90000 + (income - 1800000) * 0.15,
    income <= 3500000 ~ 195000 + (income - 2500000) * 0.175,
    income <= 5000000 ~ 370000 + (income - 3500000) * 0.20,
    income <= 8000000 ~ 670000 + (income - 5000000) * 0.225,
    income <= 12000000 ~ 1345000 + (income - 8000000) * 0.25,
    income <= 30000000 ~ 2345000 + (income - 12000000) * 0.275,
    income <= 50000000 ~ 7295000 + (income - 30000000) * 0.30,
    income <= 75000000 ~ 13295000 + (income - 50000000) * 0.325,
    TRUE ~ 21420000 + (income - 75000000) * 0.35
  )
}

Inflation Impact Analysis

Pakistan like many other countries has experienced devastating post-covid inflation over the past 5 years:

Code 
# Pakistan's inflation rates (Consumer Price Index)
inflation_data <- data.frame(
  Year = c(2020, 2021, 2022, 2023, 2024, 2025),
  Inflation_Rate = c(10.7, 12.3, 19.9, 37.2, 23.1, 15.8),  # Approximate rates
  Cumulative_Inflation = c(1.0, 1.123, 1.346, 1.847, 2.273, 2.632)
)

# Real purchasing power calculator
real_value_2020 <- function(nominal_2025, cumulative_inflation = 2.632) {
  nominal_2025 / cumulative_inflation
}
Critical Reality Check

A salary of Rs. 1.5 million in 2025 has the same purchasing power as Rs. 570,000 in 2020 due to cumulative inflation of 163%!

The Brutal Reality: Tax Burden Analysis

Table 1: The Devastating Impact on Pakistan’s Salaried Class

**THE BRUTAL REALITY: How Pakistan's Government is Crushing the Salaried Class**
Income Analysis
Tax Burden
Impact
Income Class Nominal Income (Rs.) Real Income (2020 Terms) Tax 2020 (Rs.) Tax 2025 (Rs.) Tax Rate 2020 (%) Tax Rate 2025 (%) Tax Increase (%) Real Disposable Income Change (%)
Lower Middle 800,000 303,951 10,000 10,000 1.25% 1.25% 0% -62%
Middle Class 1,500,000 569,909 60,000 75,000 4% 5% 25% -62.4%
Upper Middle 2,500,000 949,848 195,000 255,000 7.8% 10.2% 30.8% -63%
Professional 3,500,000 1,329,787 370,000 520,000 10.57% 14.86% 40.5% -63.8%
High Earners 5,000,000 1,899,696 670,000 1,015,000 13.4% 20.3% 51.5% -65%
Note

Real income uses 163% cumulative inflation (2020-2025). Tax increases compound purchasing power erosion.”

The Compound Effect: Year-by-Year Breakdown

Pakistan’s inflation didn’t just add up—it compounded devastatingly over five years.

**Pakistan's Cumulative Inflation Breakdown (2020-2025)**
Year Annual Rate Cumulative Calculation Factor What Rs.100 Costs Impact
2020 Base Year 1.00 1.000 Rs. 100 Base year
2021 12.3% 1.00 × (1 + 12.3%) = 1.123 1.123 Rs. 112 Modest increase
2022 19.9% 1.123 × (1 + 19.9%) = 1.346 1.346 Rs. 135 Accelerating
2023 37.2% 1.346 × (1 + 37.2%) = 1.847 1.847 Rs. 185 **KILLER YEAR**
2024 23.1% 1.847 × (1 + 23.1%) = 2.273 2.273 Rs. 227 Still high
2025 15.8% 2.273 × (1 + 15.8%) = 2.632 2.632 Rs. 263 Final impact

What 163% Cumulative Inflation Means

The cumulative factor of 2.632 reveals the devastating reality:

**The Devastating Math: What 163% Cumulative Inflation Really Means**
Impact Measure Result Calculation
Cumulative Inflation 163.2% (2.632 - 1) × 100 = 163%
Price Increase Rs. 100 → Rs. 263 100 × 2.632 = 263
What Rs. 100 in 2020 costs in 2025 Rs. 263 Original price × 2.632
Purchasing Power Retained 38% 1 ÷ 2.632 = 0.38 = 38%
Purchasing Power Lost 62% 1 - (1 ÷ 2.632) = 62%
The Bottom Line

Your Rs. 100 in 2020 can only buy what Rs. 38 could buy in 2025.

You’ve lost 62% of your purchasing power even if your salary stayed the same!

Real Income Calculation Formula

**Real Income Examples: The Purchasing Power Devastation**
Salary Category 2025 Nominal 2020 Purchasing Power Value Lost % Lost
Entry Level Rs. 500,000 Rs. 189,970 Rs. 310,030 lost 62%
Middle Class Rs. 1,500,000 Rs. 569,909 Rs. 930,091 lost 62%
Professional Rs. 3,000,000 Rs. 1,139,818 Rs. 1,860,182 lost 62%
Senior Manager Rs. 5,000,000 Rs. 1,899,696 Rs. 3,100,304 lost 62%
Executive Rs. 8,000,000 Rs. 3,039,514 Rs. 4,960,486 lost 62%

Visual Impact: The Inflation Devastation

Key Takeaways

The Harsh Reality
  1. 2023 was the killer year - 37.2% inflation devastated purchasing power
  2. Rs. 100 in 2020 = Rs. 263 in 2025 - nearly triple the cost
  3. 62% purchasing power lost - more than half your money’s value gone
  4. Real salaries need to increase 163% just to maintain 2020 living standards
  5. Tax increases compound the problem - higher taxes on devalued money

Shocking Key Findings

💰 The Numbers Don’t Lie

Most Devastating Impacts:

  • Middle Class (Rs. 1.5M): Real disposable income has fallen by 62.4%
  • Professional Class (Rs. 3.5M): Tax burden increased by 40.5%
  • High Earners (Rs. 5M): Pay an additional Rs. 345,000 annually
  • All Classes: Face double burden of higher taxes AND 163% cumulative inflation

Visual Analysis

Tax Rate Evolution Across Income Classes

Real vs Nominal Income Impact

Economic Policy Implications

The Vicious Cycle

**The Vicious Cycle: How Tax Policy is Destroying Pakistan's Economy**
Policy Factor Middle Class Impact Professional Class Impact Economic Consequence
Tax Rate Increases 25% higher taxes 40% higher taxes Reduced compliance
Inflation Erosion 57% purchasing power loss 57% purchasing power loss Capital flight
Combined Effect Devastating 67% real income loss Catastrophic 73% real burden increase Economic stagnation

Recommendations for Reform

Urgent Policy Reforms Needed
  1. Inflation-Indexed Tax Brackets: Adjust tax slabs annually for inflation
  2. Progressive Relief: Reduce tax burden for middle-income earners
  3. Broaden Tax Base: Include agricultural and undocumented sectors
  4. Economic Incentives: Provide tax relief for productive investments
  5. Real Income Protection: Link salary adjustments to inflation indices

Conclusion

The data presents an undeniable crisis: Pakistan’s salaried class faces a devastating double burden of escalating tax rates and hyperinflation. With real purchasing power declining by over 50% for most income groups, the current tax policy is not just unfair—it’s economically destructive.

The government’s strategy of treating salaried individuals as a “cash cow” while other sectors remain undertaxed is creating a brain drain, reducing economic productivity, and increasing social inequality. Immediate reform is not just necessary—it’s essential for Pakistan’s economic survival.

Analysis based on tax slabs available schedules and inflation data. All calculations use compound inflation effects and actual tax brackets as implemented by the Government of Pakistan.

This document is intended to highlight the severe economic impact of current tax policies on salaried individuals in Pakistan. It is not intended as financial or tax advice.

All errors and omissions are the responsibility of the author. Thanks to AI tools for helping structure and assist in the analysis.