Except for receiving $2.3 billion loan from Chinese consortium, there are all bad news for Pakistan economy on Friday – from cutting down slab for income tax on salaried class to super tax on big businesses and Rs50 per litre petroleum levy.
Finance Minister Miftah Ismail announced that a Chinese consortium loan of RMB 15 billion (roughly $2.3 billion) has been credited into the State Bank of Pakistan’s (SBP) account, increasing Pakistan’s foreign exchange reserves.
On the other hand, the coalition government announced new tax measures, all anti-people, including a 10 percent “super tax” on 13 large industries to raise an additional Rs465 billion in revenue, in an attempt to trim the budget deficit to revive the stalled International Monetary Fund (IMF) loan programme.
High net worth individuals will also be subject to a “poverty alleviation tax”.
Those whose annual income exceeds Rs150 million will be taxed at one percent; for Rs200 million at 2pc; Rs250m at 3pc; and Rs300m at 4pc of their income.
After he announced the super tax in his morning address to the nation, Prime Minister Shehbaz Sharif’s speech triggered a nosedive at the Pakistan Stock Exchange, as its benchmark KSE-100 index saw a sharp 2,053-point drop before trading was halted. As of noon, it stood at 40,663.62, down 4.81pc.
Finance Minister Miftah Ismail later clarified on Twitter that the “super tax” was a “one-time tax needed to curtail the previous four record budget deficits”. He elaborated further in his speech in the National Assembly, where lawmakers had gathered to conclude the budget session.
Earlier, the finance minister expressed happiness at receiving the loan from China on Twitter.
The government also intends to apply a maximum petroleum levy of Rs50 per litre on all petroleum products, including petrol and diesel, besides a levy of Rs30,000 per tonne on liquefied petroleum gas.
At the same time, the Rs47bn tax relief announced by the government in the next year’s budget for salaried citizens has also been reversed. The tax exemption limit has been reversed to Rs600,000 from Rs1.2 million, whereas the fixed tax of Rs100 has been replaced with a 2.5pc tax for individuals earning between Rs600,000 and Rs1.2m.
In its first budget, the current government avoided taking unpopular tax measures for fear of political backlash. However, it had to roll back several relief measures after the IMF asked Islamabad to take practical measures to stabilise the economy.
The revenue measures announced on Friday are in addition to taxes worth Rs440bn announced on June 10, meaning the net revenue measures announced in the 2022-23 budget now amount to Rs905bn.
It is also estimated that the bulk of the revenue of more than Rs400bn will come from expected 12.8pc inflation in 2022-23 fiscal year, while the remaining will be contributed by economic growth.
The government has also increased the Federal Board of Revenue’s (FBR) tax collection target from Rs7.004 trillion to Rs7.47tr after extensive negotiations with the IMF technical team. However, the target for non-tax revenues has been revised down to Rs1.94tr from Rs2tr.
SUPER TAX: Addressing the nation on Friday after a meeting with his economic team, the premier announced a 10pc “super tax” on large-scale industries in a bid to shore up revenues for supporting the country’s poor amid rising inflation.
The 13 industries to be taxed include cement, steel, sugar, oil and gas, fertilisers, LNG terminals, textile, banking, automobile, cigarettes, beverages, chemicals and airlines.
The PM said these sectors had earned significant profits this year. Entities in the rest of the sectors will have to pay this one-time additional tax at the rate of 1pc to 4pc on their income.
In the budget, a 2pc super tax was also announced on an annual income exceeding Rs300m, which has now been revised.
An additional 1pc tax would be imposed on individuals and entities earning between Rs150m and Rs200m a year on account of poverty alleviation.
Similarly, those earning Rs200m to Rs250m would be taxed at the rate of 2pc, from Rs250m to Rs300m at 3pc and those earning above Rs300m at 4pc.
“This is a one-time tax for the fiscal year 2022,” he added.
FIXED TAX FOR RETAILERS: Later, addressing a National Assembly session convened to wind up the budget debate, Finance Minister Ismail announced a new fixed tax scheme on shops outside of the tax net to reduce the budget deficit and elaborated on the super tax.
He said the country was no longer on the way to default as it was on the path to progress and informed the lower house that there are around nine million retail shops in Pakistan and the government wanted to bring 2.5m to 3m of them into the tax net. For this, a new fixed scheme has been introduced under which a small shop owner will pay a fixed tax of Rs3,000 and big retailers Rs10,000 per month.
“After that, they will not be questioned on anything else,” the minister added.
The retailers 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, which was reduced from Rs50,000. For bigger shops, the sales tax had been reduced from 17pc to 3pc, he added.
The withholding tax on gold sold by individuals to goldsmiths has been reduced from 4pc to 1pc. A similar scheme of fixed tax will be announced for realtors, builders and car dealers.
He said the government had withdrawn the condition of withholding tax on IT companies with sales of less than 80m. The tax on venture capital funds invested in the IT sector has also been removed.
As for oil marketing companies, the minimum tax has been reduced to 0.5pc from 0.75pc.
Overseas Pakistanis who held the Nicop identity card 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, Mr Ismail 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, he said and added that sales tax on skin and hides and surgical instruments had also been removed.
SALARIED CLASS: As per the proposed upward slab, people earning Rs600,000 to Rs1.2m per year will pay a tax of 2.5pc, whereas those earning Rs1.2m to Rs2.4m will pay a 12.5pc tax instead of 7.5pc last year.
Individuals earning Rs2.4m to Rs3.6m a year will be charged at Rs165,000 plus 20pc of the amount exceeding Rs2.4m.
Those earning Rs3.6m to Rs6m a year will be charged at Rs405,000 plus 25pc of the amount exceeding Rs3.6m.
People with an annual income of Rs6m to Rs12m will be charged at Rs1.005m plus 32.5pc of the amount exceeding Rs6m.
In the last slab, individuals earning more than Rs12m a year will be charged at Rs2.955m plus 35pc of the amount exceeding Rs12m.
PM SHEHBAZ: In his address, the premier said the steps taken in the budget were designed to ease the burden on the poor. “As for the classes who are blessed, today, this nation is demanding of them to also work hard, to come forward and to make Pakistan prosperous and progressive,” he added.
He called on the wealthy to “distribute” some of their wealth and “relive the memory of Ansar-i-Madina”. “This is your responsibility, and the nation demands it of you,” he said.
Referring to his predecessor Imran Khan’s “shackles of slavery” remarks, PM Shehbaz said economic stability and economic freedom were the only true ways the “shackles of slavery would be broken”.