- One-time levy to be imposed on cement, steel, sugar, oil and gas, fertiliser, LNG , textile, banking, and automobile sectors among others for FY23
Prime Minister Shehbaz Sharif announced on Friday 10% poverty alleviation tax or super tax on large industries in his "bid to relieve the general public of tax pressures".
“The collection from this tax will be used to alleviate poverty in Pakistan and will be funded by the high income earners,” he said after a meeting with the government’s economic team.
The tax will be applicable on cement, steel, sugar, oil and gas, fertiliser, LNG, textile, banks, automobile, beverages, chemicals and tobacco sectors. Later, finance minister Miftah Ismail also mentioned airlines as among those included in the list, taking the total of 13 sectors.
According to the PM, the move will reduce the tax burden on the common citizens.
“We intend to tax high income earners so that the entire nation can reap the benefit through education, health, infrastructure, skills education and IT uplift,” he said. “This is a cross subsidy and if we do not act immediately, then loans are the only option.”
He stressed that the initiative would lead to economic security and freedom and break the shackles of financial slavery.
"This is self-reliance," he said.
“Around 40% of tobacco manufacturing industry is informal and does not pay tax,” he said.
He added that tax amount worth Rs2 billion does not enter the national exchequer due to authorities’ negligence.
“We will make use of digital tools to end tax evasion,” he said.
Following this announcment, the KSE-100 index fell 2,053.35 points or 4.81% to 40,663.62 points before the market was suspended for Friday prayers.
PM Shehbaz admitted that people were bearing the brunt of inflation however “with our efforts, the threat of default over Pakistan is waning.”
High income earners should play their role for growth of the nation, the PM stressed.
Miftah Ismail adds details
The extra one-time 10% tax on large scale industry for one year will help raise over Rs400 billion ahead of a deal to resume crucial funding from the International Monetary Fund, Finance Minister Miftah Ismail added on Friday.
The announcement comes ahead of what Pakistan hopes will be an agreement to unlock a new tranche of IMF funds which are needed to avert a balance of payment crisis.
"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 that brought in the new taxes.
"We've taken very difficult decisions," he said.
Miftah called it a super tax, pleading with large scale industry to bear with it just for one year to help shore up revenues urgently required to cut the fiscal deficit.
He said it will be levied on 13 big sectors, including sugar, steel, cement, oil and gas, fertilizer, cigarettes, chemical, automobiles, banks, textile, LNG terminals and beverages. Miftah said a revised budget will raise the revenue collection target to Rs7.4 trillion after the tax imposition.
He said a one-time tax slab from 10% to 40% will also be introduced on individual earnings from 150 million rupees to 400 million rupees a year.
The IMF has been pushing Pakistan to raise revenues and cut expenditures to trim the deficit to be able to get its next loan tranche of $900 million, that has been suspended since earlier this year. "It was necessary to resume the IMF programme to save our country from default," Miftah said, adding that Pakistan will post a positive primary deficit for the FY2022-23.
The South Asian nation desperately needs the IMF funding as it has been in the grip of a financial crisis, with foreign exchange reserves held by the central bank falling as low as $8.2 billion, and the Pakistani rupee at record lows against the US dollar.
Pakistan entered the 39-month, $6 billion IMF programme in 2019, but less than half of the amount has been disbursed to date as Islamabad has struggled to keep targets on track.