On Friday, Pakistan Prime Minister Shehbaz Sharif announced a 10 percent “super tax” on big-scale industries, including sugar, oil and gas, cement, steel, airlines, fertilizers, LNG terminals, textile, banking, automobile, cigarettes, beverages, and chemicals, in a bid to control the super-inflationary pressure bounding on the economy and saving the cash-strapped country from going “bankrupt.”
Not only big industries but High net worth individuals will also have to pay “poverty alleviation tax,” Sharif announced just after chairing a meeting with his economic team on the federal budget for the next financial year 2022-23.
Sharif, in an interview with Geo TV, said his first target was to provide relief to citizens of the country by reducing the burden of inflation on them, Sharif said, Geo TV reported.
Secondly, the country needs a financial cushion to save itself from going bankrupt,” he said. He blamed the “incompetency and corruption” of the previous Imran Khan government that put the economy in jeopardy.
Sharif said the stabilization of the economy is what he wants. “These aren’t just words, this is the voice of my heart, and InshaAllah we will be able to achieve all these targets,” he said.
He said that history has witnessed that it is always the poor people who made sacrifices.
“Today, it is time for the affluent citizens to do their part. It is their turn to show selflessness. And I am confident that they will contribute fully to play their part,” Sharif said.
He said the taxes must be taken from the rich and given to the poor.
Entities or individuals earning more than Rs 150 million will pay 1 percent tax; for Rs 200 million, 2 percent; Rs 250 million 3 percent; and Rs 300 million will be subject to 4 percent of their income, thenews reported.
PM Shehbaz Sharif said he constituted teams to boost tax collection with the help of organs of state institutions and via digital means.
He stated that while 60% of the formal economy was paying taxes, the remaining 40% needed to be included in the tax system.
He said the collected tax will be utilized in funding the projects of health, education, skilled training, and information technology.
He said, for the first time in the budget history of Pakistan, a budget is made to provide relief to the common man, orphans, widows, and the poor.
Post the announcement, the Pakistan Stock Exchange benchmark KSE-100 index sank by 2000 points or around 4%.
Super Tax: An Attempt To Resumpt IMF Program To Save Country From Default
Finance Minister Miftah Ismail said an extra one-time 10% tax imposed on the large-scale industry for one year would help in raising over 400 billion Pakistani rupees ($1.93 billion) to clinch a deal with the International Monetary Fund.
“Let me share this good news that this country isn’t heading toward a default anymore,” the finance minister told parliament in his concluding budget speech.
“We’ve made very difficult decisions,” he said. Ismail called this 10% tax, a super tax, pleading with the big industry players to endure this for one year to help generate the revenues urgently required to cut the fiscal deficit.
Ismail said a revised budget would increase the revenue generation target to 7.4 trillion rupees from 7 trillion rupees after the tax imposition. He said a one-time tax slab from 10% to 40% will also be introduced for the individual earnings from 150 million rupees to 400 million rupees annually.
The IMF has been propelling Pakistan to increase revenues and slash expenditures to decrease the budget deficit if the country wasn’t the next loan tranche of $900 million, which has been suspended since earlier this year.
“It was necessary to resume the IMF program to save our country from default,” Ismail said, adding that Pakistan will significantly cut down the total and primary budget deficit for FY 2022-23 in alignment with the IMF.
The cash-strapped nation desperately needs IMF funding as it is in the grip of a financial crisis, with foreign exchange reserves totaling as low as $8.2 billion, and the Pakistani rupee bleeding against the US dollar.
Pakistan signed the 39-month, $6 billion IMF program in 2019, but only fifty percent of the amount has been disbursed to date as Islamabad could not consistently keep targets on track.
Opposition Slams “Super-Tax”, Called It Fuel To Inflation
Opposition leaders and industry players slammed the coalition government for introducing a 10% super tax on large-scale industries, adding that this tax imposition will lead to the “closure of industries.”
Addressing a press conference, former finance minister Shaukat Tarin said industries would be forced to shut down. The imposition of tax will pave the way to a “storm of inflation”.
Tarin, while taking a jobe at the Sharif government, said that it talks about taking care of the poor, but its actions show otherwise.
He took to Twitter and said, “Miftah mian, with an overseas Ph.D., should have enabled you to acknowledge your own approved economic survey which documents stellar PTI performance in the last two years.”
Miftah Mian,with an overseas PhD, should have enabled you to acknowledge your own approved Economic survey which documents stellar PTI performance in the last two https://t.co/uJuVUKm6n1 refuse to accept it as it exposes your https://t.co/xmC7X4duMk does not believe you.
— Shaukat Tarin (@shaukat_tarin) June 24, 2022
“You refuse to accept it as it exposes your narrative. [The] market does not believe you,” he added.
Former finance minister and PTI leader Hammad Azhar tweeted that the super tax will end up further squeezing the formal sector of the economy.
Industry is already facing crippling costs due to rising prices of commodoties and energy. This super tax will be priced in their balance sheets and passed on to the customers in many cases. Means even higher prices for the public. https://t.co/4op4vlgKg1
— Hammad Azhar (@Hammad_Azhar) June 24, 2022
“This means taxing the already taxed even more. The economy is nose-diving, and such a measure at this time will reverse the industrialization momentum that PTI generated.”
Azhar said, “Industry is already facing crippling costs due to rising prices of commodities and energy. This super tax will be priced in their balance sheets and passed on to the customers in many cases. Means even higher prices for the public.”
Shehbaz Sharif Clarifies Rationale Behind Super Tax:
“Government has taken this decision for the purpose of poverty alleviation. We have asked our affluent segment of society to fulfil the national duty by sharing the burden, for it is the poor who have always borne the brunt & rendered sacrifices for the country,” he tweeted.
In the following tweets, I explain the rationale behind the announcement of 10% super tax on the affluent people.
— Shehbaz Sharif (@CMShehbaz) June 24, 2022
This is the first budget that contains the plan for revival of the economy. The hard decisions we have taken will enable the country to overcome the economic crisis. The government has tried its best to place minimum burden on lower income & salaried class.
— Shehbaz Sharif (@CMShehbaz) June 24, 2022
Let me make two things absolutely clear here. First, it is a direct tax on the income of people & industries falling in certain categories of income. Secondly, the proceeds from this measure will be spent in the most productive of ways for people facing financial constraints.
— Shehbaz Sharif (@CMShehbaz) June 24, 2022
Macroeconomic stability is the first step. What the coalition government is aiming to achieve is economic self-sufficiency. This precisely is the spirit of the budget. Our national security is very closely tied to economic reliance.
— Shehbaz Sharif (@CMShehbaz) June 24, 2022
Pakistan Business Council (PBC) Rebuffs Govt’s “Super-Tax Law”
“10% super tax on an industry already carrying a disproportionate burden when agriculture and trade contribute little and investment level is low and retrogressive. What makes it worse is that it is retrospective,” the Pakistan Business Council (PBC) said on its official Twitter handle.
10% super tax on industry already carrying disproportionate burden when agriculture and trade contribute little and investment level is low is retrogressive. What makes it worse is that it is retrospective. @MiftahIsmail @PakPMO
— The Pakistan Business Council (@ThePBC_Official) June 24, 2022
It questioned how taxing the already taxed going to encourage more to join the tax base? How would manufacturing grow when commercial importers enjoy full and final tax on under-invoiced goods? How will we balance the current account?” the business council raised its concerns.
How is taxing the already taxed going to encourage more to join the tax base? Why would manufacturing grow when commercial importers enjoy full and final tax on underinvoiced goods? How will we balance the Current Account? @imf_pakistan @MiftahIsmail @PakPMO
— The Pakistan Business Council (@ThePBC_Official) June 24, 2022
Taking a sweep at the finance minister’s assurance on time-period this tax would be imposed, the PBC said based on the past history, there are some hard-to-believe promises made now in the budget including “this is a one-time tax”, “tax refunds will be made promptly”.
Based on the past history, here are some hard to believe promises made now in the budget: ‘this is a one-time tax’; ‘tax refunds will be made promptly’. @MiftahIsmail @FBRSpokesperson
— The Pakistan Business Council (@ThePBC_Official) June 24, 2022