Super tax on 13 big industries

ISLAMABAD: Prime Minister Shehbaz Sharif Friday announced imposition of 10 per cent super tax on 13 large industries, and additional tax on affluent persons who earn more than Rs150 million annual incomes at the rate of one to four per cent for generation of more revenue.

Addressing members of his economic team, he said the 10 per cent one-time super tax was aimed at poverty alleviation and it would be imposed on high earning industries and sectors, including cement, steel, banking, airlines, textile, automobile assembly, sugar mills, beverages, oil and gas, fertilisers, cigarettes, chemicals, and LNG terminals.

Shehbaz believed that imposition of the super tax would be the first step towards the country’s financial self-reliance, economic stability and ridding it of loans. “I have formed teams to boost tax collection with the help of organs of state institutions and through digital means,” the PM said.

The PM regretted that the country was losing Rs2,000 billion every year as a result of tax evasion, saying that 60 per cent of the formal sector was paying taxes, and the rest of 40 per cent economy needed to be brought into the tax net. He said the collected tax would be diverted towards the projects of health, education, skilled training and information technology. For the first time in the country’s history, he said, a budget had been presented to provide relief to common man, orphans, widows and poor, he said.

He said that measures taken in the budget would enable the poor overcome their financial challenges, and expressed the confidence that the measures would take Pakistan forward on the path to prosperity, progress and economic stability. The PM said history stood witness that the poor always offered sacrifices; however, now it was a moral obligation of affluent to come forward and contribute. He said the measures taken by the government enjoyed support of the leaders of allied parties and they were standing shoulder-to-shoulder with the government. He said merit, honesty, integrity and upholding of the right of downtrodden were the hallmark of his government. “With hard work and faith in Allah Almighty, things would ease up,” he said.

Finance Minister Miftah Ismail, while winding up debate on the federal budget in the National Assembly on Friday, told parliamentarians about imposition of the super tax. He said the government had revised tax collection targets from Rs7,004 billion to Rs7,470 billion for the fiscal year 2022-23. He announced a new fixed tax scheme on shops outside of the tax net to reduce the budget deficit. He said the country was no longer on the way to default and it was on the path to progress. He had presented the budget for the fiscal year 2022-23 with an outlay of Rs9.5 trillion on June 10.

During his address, he said: "We have taxed the rich. Much of the revenue will be collected through that so that we don't have to ask for money from others and are able to reduce our budget deficit," he said.

Then, on a lighter note, he sought credit for imposing taxes on companies owned by Prime Minister Shehbaz Sharif's son. "And my companies will also pay Rs200m more in taxes than before and so if we are asking others to pay more taxes, we, too, are contributing to this [cause]," the finance minister said. He said the government had committed to the IMF that the primary deficit of Rs1,600bn recorded this year would not only be brought down but there would be a surplus of Rs153bn.

To achieve this, as well as self-reliance, an additional tax of 1pc would be imposed on individuals and entities whose annual income exceeded Rs150mln. Similarly, he added, those with an annual income of over Rs200mln would be subject to an additional tax of 2pc, those earning more than Rs250mln to 3pc and those having an annual income of more than Rs300mln would be taxed 4pc of their income. "This is a one-time tax for the fiscal year 2022 (on income earned in that year)," he added.

Moving on to details of other taxes, he said there were around nine million retail shops in Pakistan and the government wanted to bring 2.5 to 3 million of these shops into the tax net. For the purpose, he said, a new scheme had been introduced under which the income tax and sales tax that these shops had to pay had been "fixed with their electricity bills". He added that under the initiative, small shops would have to pay a fixed tax of Rs3,000 monthly and big retailers Rs10,000. "After that, they will not be questioned on anything else," the minister added.

Moreover, he said retailers who were dealing in gold and had shops of 300 square feet or less would have to pay a fixed income and sales tax of Rs40,000. And for bigger shops, the sales tax had been reduced from 17pc to 3pc, he added. Miftah said the withholding tax on gold sold by individuals to goldsmiths had been reduced from 4pc to 1pc.

He said that a similar scheme of fixed tax would be announced for realtors, builders and car dealers. "This tax is on their income and not expenses, and this is why it will not increase inflation but increase our revenue," Miftah claimed. He added that the government had withdrawn the condition of withholding tax on companies operating in the IT sector and had sales of less than Rs80mln. He added that tax on venture capital funds invested in the IT sector had also been removed.

About oil marketing companies, he said these entities had to pay a minimum tax of 0.75pc, which had been reduced to 0.5pc. Moreover, he said, 5pc commission was cut on outgoing indenters at the time of receipt. "This has now been reduced to 1pc."

Overseas Pakistanis who had an NICOP would be considered included in the list of active taxpayers so that they did not have to pay any additional taxes when buying a property, Miftah said, adding that a provision of 50pc reduction in capital gains tax for those who had been allotted plots while in services was initially removed from the budget, but now it had been restored.

Families of martyrs and war-wounded individuals would be exempted from tax on income from plots, Miftah said and added that sales tax on skin and hides and surgical instruments had also been removed.

The minister also spoke about relief measures taken by PM Shehbaz, including 'sasta petrol, sasta diesel' scheme and a programme for providing flour, sugar and ghee at utility stores. He told the house that the tax target, which was initially set at Rs7.004tr had been increased to Rs7.47tr. At the same time, he added, the target of non-tax revenue that was set at Rs2tr had been revised down to Rs1.94tr. He announced that the government would give Rs4.37tr to the provinces. "After all these expenses, the federal government's deficit would stand at Rs4.55tr and total deficit at Rs3.78tr," Miftah said.

The minister announced that the sales tax on cotton cakes (khal) had been removed and termed the budget farmer-friendly. "I don't think a more farmer-friendly budget has been presented in the past 10 to 20 years," he said, adding that this reflected the values of the incumbent coalition government. The minister said he believed that the current fiscal year would be considered a bad one in Pakistan's history as "we moved away from many of the targets and registered a significant budget deficit".

He said the "federal government has posted a deficit of 8.95 per cent of the old GDP (gross domestic product)", adding that this showed the wide gap between the country's expenditure and resources. "And then we have to take funds from others," Miftah said, adding that it was for this very reason that he had to go on multiple foreign trips right after becoming the finance minister in April.