Pakistan's move to impose "super tax" on large companies may backfire


Pakistan PM Shehbaz Sharif

Pakistan’s imposition of an additional one-time 10 per cent “super tax” on large scale industry could push up inflation even more. The sectors that will be impacted include steel, sugar, cement, oil and gas, fertilisers, LNG terminals, textile, automobile, cigarettes, chemicals, banking, and beverages among others.

Pakistan Finance Minister Miftah Ismail took to Twitter to explain the contours of the new move.

He said that while the super tax of 4 per cent will be applicable to all sectors for the specified 13 sectors, another 6 per cent will be added for a total of 10 per cent. “So their tax rates will go from 29% to 39%. This is a one-time tax needed to curtail the previous four record budget deficits,” Ismail said in a tweet.

While the Shehbaz Sharif government, battling to keep the country afloat and avoid a balance of payment crisis, is hoping to garner over (Pakistani) Rs 400 billion Pakistani rupees (US$1.93 billion), the move could raise prices as analysts said that the higher cost will “definitely be passed on to the end consumers and citizens.”

Pakistan, which is in talks with the International Monetary Fund (IMF) for revival of the $6 billion financial package, is looking at raising tax rates to meet the multilateral agency’s requirements.

Earlier, this month Islamabad increased fuel prices by a huge quantum aiming to remove subsidies, as mandated by the IMF.

In May the annual inflation in Pakistan stood at 13.8 per cent. But the increase in fuel prices and now the imposition of the super tax will push inflation further in the coming months.

“The country is already going through a turbulent phase as far as its economy is concerned..inflation is already high and the companies are still dealing with brutal impact of the Covid 19 pandemic and now this huge increase in tax rates will only create more problems for the corporate sector,” an analyst dealing with South Asia told India Narrative.

The move which is applicable for one year has not been taken favourably by the corporate world in the country.

Pakistan Tehreek-e-Insaaf (PTI) general-secretary Asad Umar said that the move is a huge blow to the country’s growing industries. He added that the “super tax” will "rattle the economy” and increase unemployment.

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