Excessive taxation

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UNDER pressure from the International Monetary Fund (IMF), the Government on Friday announced several taxation measures that might help increase revenue collection but at an unbearable cost for people of Pakistan.

Prime Minister Shehbaz Sharif 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, fertilizers, cigarettes, chemicals and LNG terminals.

And winding up general debate on the budget for the next financial year in the National Assembly the same day, Finance Minister Miftah Ismail announced a new fixed tax scheme on shops outside of the tax net to reduce the budget deficit and increased tax rates for the salaried class to raise additional Rs 35 billion.

The imposition of new taxes and increase in the rate of some others has changed the fundamental nature of the budget for the next financial year, which the Government had been describing as pro-poor, growth-oriented and aimed at providing relief to the fixed income groups.

No doubt, the decision of the Government to impose a one-time super tax on ten industries has widely been hailed as it would help raise Rs.400 billion and that too from the affluent class.

According to the government, super tax will be levied on 13 sectors, which include sugar, steel, cement, oil and gas, fertilizer, cigarettes, chemicals, automobiles, banks, textile, LNG terminals, beverages and airlines.

In addition to the above, the poverty alleviation one-time tax levied in the Finance Bill 2022 as: 1pc tax on the income between Rs150 million to Rs199.99 million – 2pc tax on the income between Rs200 million to Rs249.99 million – 3pc tax on the income between 250 million to 299.99 million – 4pc tax on the income of 300 million and above.

On the face of it, there seems to be no harm in taxing sectors that have long been availing numerous exemptions and relief packages and those earning handsomely but paying not much to the national exchequer.

The Finance Minister has claimed that the rich have been taxed to raise money to provide relief to the poor.

However, in the backdrop of poor enforcement, there is likelihood that the burden of taxes would be passed on to the end consumer and, therefore, the measure would, in fact, amount to taxing the common man.

It was because of this that the opposition PTI has rejected the super tax on big industries claiming it would trigger more inflation.

The relevant industries too have expressed dismay over imposition of the tax with Federation of Pakistan Chambers of Commerce & Industry (FPCCI) acting Chairman Shabbir Mansha pointing out that industries are already burdened with gas, electricity and high interest rate, and this super tax will retard development of the sector as well as overall economic development.

He also confirmed the view that companies would transfer the burden of the super tax to the public, which would fuel inflation across the country.

There is also a viewpoint that the new tax would negatively affect the corporate sector and this could increase layoffs and poverty might rise under ongoing hyperinflation.

Regrettably, the Government has also taken a U-turn on the issue of not adding to the burden of the salaried class as exemption originally announced for those earning up to Rs.1.2 million annually has been withdrawn and a 2.5% tax imposed for income brackets of Rs 50,000 to 100,000 per month while tax rate for income earners from Rs 100,000 to Rs 300,000 has been jacked up to 12.5%.

This would undermine the meagre relief of a 15% hike in the salaries that the Government has already announced.

The introduction of a fixed tax regime for shops outside of the tax net is a step in the right direction as those earning handsomely are not presently paying anything to the national kitty.

The new measures would make life of the people miserable but the sacrifice is worth making if the Government introduces them in a way that takes the country forward on the path of financial self-reliance, economic stability and least dependence on foreign loans.

 

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