Super Smart?

A high degree of incompetence was displayed by the government of Shahbaz Sharif when it imposed a ‘super tax’ of 10% on certain sectors. The super tax is primarily on production cartels such as cement, steel, sugar, oil and gas, fertilizers, LNG terminals, textile, banking, automobiles, chemicals, beverages and cigarettes. The super tax would certainly have a snowball impact, and its after-effects in the form of inflation and increase in cost of production will be felt comprehensively. Thus, the impression that the state is taxing the ultra-rich is no more than a mirage. The prevalent system of supply and demand, and revenue generation, will make it nightmarish to the core. The idea was to tax the high-net worth individuals in an earnest attempt to please the burdened middle class. People and businesses with annual income exceeding Rs. 150 million up to Rs. 380 million per annum were supposed to pool in the treasury with a smart tax ranging from 1% to 4%. But this new super tax is apparently a bolt from the blue and targets the prime production houses of the country.

This nervously comes at a time when energy and oil prices are at an all-time high, and growth targets have been revised down. It is estimated that the corporate income tax will now exceed 50%, which will be the highest in this region, leading to flight of capital and impeding foreign investment. What is feared is that industrial production will slow down and ultimately lead to more unemployment. This budgetary correction has come close on the heels of the federal government posting a deficit of 8.95% of the old GDP. This will inevitably add to the gap between expenditure and resources. Is Pakistan’s economic fabric strong enough to be slapped with new taxes? The answer rests in ensuring a fool-proof collection system, and one that is not culpable. With the current account deficit reaching $17 billion, along with reserves of less than $9 billion, the economy is in a fix. It is obvious that the business sector did not welcome the tax. The super tax is set to add more woes than bring in relief. The over-taxed sectors do not believe the government’s contention and are of the view that no miracles will happen next year to enable non-repetition of the one-time tax. The banking sector which had already been demanding removal of super tax, is going to be the hardest hit. If approved, the total tax rate for the banks for the year 2023 would be 55 percent. This would include 45 percent corporate tax and 10 percent super tax – something that boggles the mind!

At present, it is only the IMF that is being catered to and it is being hoped the situation will not be repeated next year to further give the IMF its pound of flesh. The further gloomy side of the picture is that none of the large, super-taxed sectors will bear the burden themselves and are expected to take all measures to pass on the added tax to consumers. Therefore, to say that the super tax has only been imposed on the rich and not on the poor would not be factual. At the end of the day, it will be the poor who will bear the brunt.

Syed Jawaid Iqbal
President & Editor in Chief