In a major development, the government on Friday imposed an extra one-time 10% tax called the super-tax on the large-scale industry for one year to raise over Rs400 billion.
Finance Minister Miftah Ismail stated that the measures were essential “to curtail the previous four record budget deficits”.
However, market analysts have expressed concern that the development would push the corporate sector towards cost-cutting measures, including layoffs, which could add to the woes of an already fragile economy.
“Layoffs could happen in the corporate sector due to a series of developments — an expected economic slowdown, policy rate hike, and now this,” Fahad Rauf, Head of Research at Ismail Iqbal Securities Limited, told Business Recorder.
"The banking sector would be hit the hardest. The government has already imposed Rs53 billion worth of tax measures on the banking sector in its federal budget,” he said.
The recently-announced super tax will be levied on 13 sectors, including sugar, steel, cement, oil and gas, fertiliser, cigarettes, chemical, automobiles, banks, textile, LNG terminals and beverages. Airlines are also included in the list.
Miftah said that a one-time tax slab from 10% to 40% will also be introduced on individual earnings from Rs150 million to Rs400 million a year.
Following the announcement, the benchmark KSE 100 share index fell 4.8% or over 2,000 points in 20 minutes by the mid-break on Friday. However, the market staged a partial recovery following the break.
“The entire market has reacted negatively to the announcement, but it will settle after clarity emerges after the Finance Bill is passed,” Tahir Abbas, Head of Research at Arif Habib Limited, told Business Recorder.
He expressed hope that the measures announced to fund the fiscal deficit would improve the government’s revenue position.
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, which has been suspended since earlier this year.
“However, the corporate sector profitability is expected to decline by 12-15%,” said Abbas.
Experts said that there were other alternatives to raise revenue instead of burdening the already taxpaying sector.
“The government should have focused on administrative measures to broaden the tax base, and brought agriculture sector in the net,” Samiullah Tariq, Head of Research at Pak Kuwait Investment Company, told Business Recorder.
“However, the IMF programme should revive now, and this is very crucial for the economy,” he said.