Federal Minister of Finance and Revenue Miftah Ismail, while presenting a Rs 9.502 trillion budget for FY23 with a 4.9 percent deficit, stated that the real challenge for the government is to achieve growth without the current account deficit. The coalition government’s first budget in National Assembly passed sans pandemonium as the lone opposition, Pakistan Tehreek-e-Insaf, continued to boycott, and agitate, drawing massive crowds outside, parliament.
People were pinning hope that the Federal Budget would offer some relief measures and big austerity drives amid rising back-breaking inflation from the government during these critical times, but all their expectations went in vain. On the contrary, the government levied additional taxes that brought the blood path on the Pakistan Stock Exchange (PSX) and perturbed corporate sectors and the public on foot.
The final node allows GoP to burden taxpayers in lower-income brackets alone, meeting collection targets, bringing the country closer to successfully reviving the stalled IMF program and taxing the rich less than the poor. The market anticipated most of these amendments, so the new document carried little surprise. Initially, the government had avoided taking unpopular tax measures but dared skyrocket an increase in energy and fuel prices like petrol, gas, and electricity despite fear of political backlash.
However, its original budget failed to get the nod from IMF, forcing the government to roll back several relief measures, including the previous regime’s multi-billion subsidy that had offered cheaper services.
The proposed 10% super-tax imposition for specified sectors with earnings above Rs300mn for the tax year 2022 (FY22), especially on 15 selected industries affected here, including Airlines, Automobiles, Beverages, Cement, Chemicals, Cigarette & Tobacco, Fertilizer, Iron and Steel, LNG terminal, Oil Marketing, Oil Refining, Petroleum & Gas exploration and production, Pharmaceuticals, Sugar and Textiles. This will result in a one-time impact of 14% on FY22 earnings, though it will not impact the FY23 earnings of companies.
The biggest shock for the public was the approval of revision in the PDL limit to PkR50/ltr (from PkR30/ltr), one of the major demands by IMF, allowing the government to meet its collection target of PkR750bn under this head. Lawmakers also approved a super tax (previously poverty alleviation tax) of 1% to 4% on annual incomes between PkR150mn to PkR300mn.
Moreover, the 6% “additional super tax” imposition on large-scale industries was also approved. This will take effective tax rates for corporates to 39% (for banks, the effective tax rate will be 49%) during the tax year 2022, while the effective tax rate will likely ease off to 33% (while for banks, the effective tax rate will settle ~ 43% ) from the next year.
An estimated 9mn retail shops in Pakistan contribute little to total tax collection, and the government wanted to bring 2.5m to 3.0m of these retailers into the tax net through a fixed presumptive tax regime, depending on their level of energy consumption. A good step, but they defiantly pass on the burden to end-users.
The trade and industry leaders criticized and expressed wonder over the PDM government’s anti-industry steps in various forms, including the least consideration in broadening the tax net and extracting more from already heavily taxed entities. They have sought an immediate withdrawal of the plan to save the industry and end-users from its adverse impact.
FPCCI’s Acting President Shabbir Mansha categorically denounced the imposition of a 10 % super tax on large industries, which already pay a hefty corporate tax of 29 % and generate millions of jobs countrywide as well. “No country in the world can charge 39 % tax to corporations and keep the economy afloat”.
Additionally, he added that new private-sector and foreign investments dry up completely in an uncompetitive market. He also expressed shock that the federal budget year 2022–23 was announced two weeks back and mentioned no super tax on industries. It is a highly abrupt, unfortunate and anti-industry measure.
We feared that the supper tax, for one time, would raise prices and affect future investments, expansions and business ventures in the industry.
It is not a matter of cost or profit alone, as it would leave an adverse impact on the existing automobile industry and its allied ones amid the job cuts of many people.
We urged that government should bring into net other untaxed or under-taxed segments of the economy, such as agriculture.
It may not be possible for the government to broaden the tax net overnight, but it is disturbing that it shies away from making a move in that direction. It’s not enough to implement a negligible fixed tax on retailers’ incomes or ‘rentals’ from real estate holdings of the rich.
The new measures will significantly squeeze companies’ profits from the super tax, and many will likely hold their future investment plans and discourage documentation.
We hope the government will consider the industry’s suggestions and broaden the tax net with new taxpayers.
Impose new duties on raw materials and encourage manufacturing that will create jobs. Let enterprises run.