- The measure may address immediate solvency concerns but if reforms are not done, there will be no golden goose to cull in future.
- By: Muhammad Umair Zeb I?? Tax Analyst
On the face of it, the move makes sense: the continuation of the IMF programme remains critical for the country’s external solvency, and to avoid a potential default scenario — thereby making it essential that tough decisions are taken, even though they may not be feasible in the mid- to long-term.
Pakistan’s 100 largest businesses have opposed the continuation of the super tax and voiced their concerns about the imposition of up to 7.5% income tax on their retained profits. They issued a stark warning to the government about the increasing default risks and its impact on the business environment.
Representatives from the country’s business chambers and the Pakistan Business Council (PBC), on Tuesday, shared their taxation proposals and expressed apprehensions about the current economic situation during a meeting with the Senate Standing Committee on Finance.
The committee proceedings reaffirmed the widespread belief that the deteriorating economic conditions have severely affected businesses, leading to closures.
Pakistan’s industrial sector is already burdened, paying approximately 56% of total taxes despite its 20% share in the economy.
Umair Zeb, The Tax analyst added that fiscal policies were already skewed against the manufacturers and the sector cannot bear the additional tax burden in the upcoming fiscal year.
The PBC strongly opposed the government’s decision to continue the up to 10% super tax, which was initially intended to be levied for only one year. However, according to Section 4C of the Income Tax Ordinance, the super tax will continue beyond the tax year 2022.
Umair Zeb, urged the government to focus on tracking non-filers of income tax returns by restricting their use of credit cards and reinstating the requirement to present Computerised National Identity Cards (CNICs) for purchases.
The Reform and Revenue Mobilisation Commission (RRMC), led by Ashfaq Tola, proposed imposing an income tax of 5% to 7.5% on the accumulated profits (distributable reserves) of listed and non-listed companies. The RRMC estimates that this measure could generate Rs338 billion in taxes in one year. The Commission recommended imposing income tax rates of 5% for listed companies and 7.5% for non-listed companies on their distributable reserves. This tax on reserves would serve as an advance tax on dividends that companies will pay to shareholders in the future. It would be adjustable against the tax levied on the actual distribution of dividends. The concept of advance tax on dividends already exists in the Ordinance for Controlled Foreign Companies.
Umair Zeb, The Tax expert added his view that the corporate tax needs to be lowered to incentivise more investment and more corporatisation. Pakistan has had a lost decade where per capita income has largely stagnated, and we now have a recurring solvency crisis every three years — if reforms are not done, things are only going to get worse, and there will be no golden goose to cull at that point.
- Muhammad Umair Zeb is Peshawar-based freelance journalist, columnist (Khyber Mail, The News Int, Business Recorder, The Frontier Post) & Finance and Tax Analyst.