In a rather reluctantly Super-tax crashes market taken financial action, the new coalition government imposed a ten percent super tax on the richer segment of the population of Pakistan that expectedly met adverse reaction. To begin with the stock market shed quite a few of its financial liquidity as it took a steep dip losing 1,598 points and sinking to 41,100 with this downward trend falling down further by 2,053 points shedding 4.8 per cent of its value. Though the super tax was imposed on large-scale industries in a bid to shore up revenues for supporting the country’s poor amid rising inflation yet the rich elite of the country showed its extreme displeasure reflecting its inert opposition to any measure aimed at alleviating the financial difficulties experienced by the majority of the country.
There were reports that the new government was very reluctant to tax the rich in a move dubbed as poverty alleviation tax but finally it succumbed to pressure and decided to impose the super tax on top revenue earning industries including cement, steel, sugar, oil and gas, fertilisers, LNG terminals, textile, banking, automobile, cigarettes, beverages, chemicals and airlines. It was decided that high net worth whose annual income exceeds Rs.150 million will be subject to 1 per cent tax, for Rs.200 million, 2 per cent, Rs.250 million, 3 per cent and the ones earning Rs.300 million will be taxed at 4 per cent of their income. The jitters caused to the government could be gauged by the fact that it was vociferously clarified that the super tax is a one-time tax needed to curtail the previous four record budget deficits.
Many financial experts point out that this super tax will be transferred to the citizens and resultantly is basically flawed. They have stated that it was essential to make sure that robust mechanics are put in place to ensure that that this distraction does not happen. The government led by the prime minister took pains to justify this measure by putting forward the rationale behind imposing the super tax on affluent people. The PM stated that the government has tried its best to place minimum burden on lower income and salaried class and has taken the step to ask the affluent segments to discharge their national duty by sharing the burden, for it is the poor who have always borne the brunt and rendered sacrifices for the country. He emphasised that the proceeds from this measure will be spent in the most productive of ways for people facing financial constraints.
Whatever the rationale behind this move, fact of the matter is that the government has no choice but to drastically raise its tax income to finance its expenditure in the next financial year and to secure the revival of the suspended IMF funding if it is to avert a default on its foreign payments. It is more than evident that the government singularly lacks the ability to broaden the tax net overnight hence the super tax yet imposing a negligible fixed tax on super rich may not solve the problem. In actual fact the steps taken by the government are reflective of the extremely dilapidated state of the country’s economic affairs. There is hardly any doubt that Pakistan has reached a point where the tried-and-tested formula of surviving in a state of debt has fallen flat on its face. It is more than clear that the imposition of super tax will not cause any salutary impact on the state of the economy but it may compel the sectors on which it is imposed to squeeze the profits of companies and many of them are likely to hold their future investment plans and discourage documentation.
Very interestingly and true to its grain the PMLN section of the coalition holding all financial portfolios conveniently avoided hitting traders long considered its core constituency and also stopped short of netting other untaxed or under-taxed segments of the economy, such as agriculture. Additionally this diversion freed PMLN from the need to slash the wasteful expenditure on SOEs that have been haemorrhaging taxpayers’ money for years now. There is hardly any doubt that the disinvestment or closures of some loss-making public-sector entities actually might have saved more cash than the imposition of a one-time super tax but then it would have brought in a wave of protests that the coalition government is desperate to avoid.
As far as the reaction of stock trade on the imposition of super tax is concerned it is now more than clear that though it resented the imposition of the tax yet it is still hopeful that an agreement with IMF has more attraction for it. In the meanwhile it has apparently revised its assessment regarding the adverse effects of the super tax and has come to the conclusion that it may not be that harmful as it appeared to be at the outset. TW