Ayush Bansal
Image: Deccan Herald
Pakistan PM Sharif announces 10% ‘super tax’ on large-scale industries
Pakistan’s prime minister Shehbaz Sharif has announced a 10% “super tax” on large-scale industries in a bid to consolidate revenues and support the country’s poor amid rising inflation, the Dawn reported on June 24.
These sectors include cement, steel, sugar, oil and gas, fertilizers, LNG terminals, textile, banking, automobile, and cigarettes.
The announcement comes ahead of what Pakistan hopes will be an agreement to unlock a new tranche of IMF funds which are needed to avert a balance of payment crisis.
“Let me share this good news that this country isn’t heading toward a default anymore,” the finance minister told parliament in his concluding budget speech that brought in the new taxes.
“We’ve taken very difficult decisions,” he said. Ismail called it a super tax, pleading with large-scale industry to bear with it for just one year to help shore up revenues urgently required to cut the fiscal deficit.
In an address to the nation, Sharif said that the coalition government made “courageous” decisions to protect the country from “serious dangers”.
Trading at the Pakistan Stock Exchange (PSX) went down crashing by over 2000 points minutes after Pak PM’s announcement.
Pakistani authorities have so far raised fuel prices, power tariffs, and taxes and have unveiled austerity measures to meet the lender’s requirements.
Increased tax collection
The government has also pledged an increased tax collection from PKR 7 trillion to PKR 7.4 trillion in the next fiscal year beginning July 1.
Mr. Sharif said teams will be formed to collect taxes after the passage of the budget bill.
The prime minister expressed the hope that “soon Pakistan will come out of the economic crisis and announce to provide relief to the poor segment of society.” He recalled that the government had two options when it came to power — call fresh elections or take tough decisions and tackle the sinking economy.
“It would have been very easy to leave the public in crisis and become silent spectators like others,” he explained.
Mr. Sharif made another appeal for a “grand national dialogue” to end the country’s current economic travails.
Other Scenario
As per the PSX rule book, if the index goes five percent above or below its last close and stays there for five minutes, trading in all securities is halted for a specified period.
“PSX witnessed massive pressure across the board after the Prime Minister announced a 10 percent super tax on industries for one year to bridge the gap in the fiscal deficit,” Ahsan Mehanti of Arif Habib Corporation said.
Khurram Shehzad, CEO of Alpha Beta Core told the Dawn newspaper that after the government’s latest measures, the corporate income tax and investor tax will now exceed 50 percent and 55 percent, respectively.
“This is the highest not only in this region but in the history of Pakistan. It is one of the highest tax rates in the world,” he said.
The brokerage house further said though this move will affect company profitability for the current year, “we believe that the valuation is still attractive. Market after this measure is trading at a PE of 4-5x.”
In another major economic development, the finance minister informed State Bank of Pakistan (SBP) received $2.3 billion in loan from China that would help prop up the waning foreign exchange reserves of Pakistan.