Asrar Raouf describes the debilitated state of the
Pakistan’s state of the economy had to experience multiple jolts as after facing the pandemic it went through change of government and then the country was ravaged by unprecedented floods that completely trampled its economy. Even now one third of the country is submerged under flood water with people crying out for help.
In this situation it is not surprising that people’s trust in the state of the economy has slumped beyond redemption. Pakistan’s economic condition has remained vulnerable for the past many years. Findings have confirmed that the people’s personal financial situation did not improve much. There had been growing concern that the top-to-bottom approach to make people rich was not working around the globe amid renewed emphasis on making direct intervention to support the lower and middle-income groups.
Over three-fourths of Pakistanis believed that the state of the economy would weaken further in the next six months, showing increased desperation. Only 7% held a hopeful view that the economic conditions would improve. Inflation is the most worrying factor for the Pakistanis, followed by unemployment and the flood situation.
Increase in electricity prices and the burden of additional taxes were the two other top concerns for the people, who were bracing for 27% inflation and paying nearly half of their income in direct and indirect taxes. An overwhelming majority of 93% expressed concern over their job security given the current economic situation.
Hardly 2% of Pakistanis rated their personal financial situation as strong during the past six months, which had been the lowest reading ever. About 61% of respondents said that their personal financial situation was weak while the remaining said it was neither strong nor weak.
State Of The Economy Situation
Consumers were not confident and were reluctant to make investment decisions, besides having doubts about saving money and investing in their future. In addition, 93% of respondents felt less confident about their ability to save money and invest in their future. The remaining 7% were comfortable, which was the lowest-ever level.
This negative perception about the economic situation is quite natural as the situation in the country is real bad as the estimated damage from the severe floods has gone up to $28 billion implying an upsurge in poverty by 5 per cent that means nine to 12 million people might fall below the poverty line, a horrendous prospect indeed.
If looked from unemployment angle it means that 1.8 to two million jobs have been lost on account of the floods and it will take some five to ten years to reconstruct the destroyed infrastructure. During the course of the current financial year only the inflation might climb up to 25 per cent and it could go even up as the costs of refurbishment increase.
To add to the worry is the fact that the agriculture growth might plunge into negative by -0.7 to -2.1 per cent compared to the envisaged target of positive 3.9 per cent for current fiscal registering export losses of $3 billion. It is reported that out of the four provinces Sindh, AJK, Gilgit-Baltistan (GB) have suffered the most and their damages stand at $5.9 billion. Balochistan is second with $3.04 billion losses whereas losses in Punjab is estimated at $0.55 billion, KPK $0.54 billion and AJK $0.02 billion.
Relief To The Real Estate Dealers And Bankers
In a worrying development two provincial courts have given interim relief to the real estate dealers and bankers against payment of deemed income tax on the realty sector and additional tax on banks’ investment in government debt. The relief, though temporary until the courts decide the fate of legal clauses, will impact the government’s estimated revenue collection of Rs.45 billion.
This development took place as the lawyers representing the banks and realty sector duly exploited legal lacunas in the taxation policy letting the Lahore High Court (LHC) to permit the real estate sector to seek extension in filing of annual income tax returns, if it was aggrieved by the 20% deemed income tax.
Similarly, the Sindh High Court (SHC) allowed the banks that they may file annual income tax returns on the basis of old advance-to-deposit ratio (ADR). It may be noted that the FBR had taken those measures in the budget to raise a cumulative Rs.45 billion in additional taxes.
The petitioners, through the lawyer, pleaded that the income tax rates applicable for tax year 2022 have been enhanced for year 2022, which amounts to taxing the past and closed transactions, as according to the learned counsel for the petitioners, the banks have already made investment during fiscal year 2021, keeping in view the earlier prescribed rates.
The government cannot subsequently enhance the rates to be applied retrospectively for the same tax year, which is 2022, according to the banks’ lawyer. The court has given pre-admission notices to the Attorney General of Pakistan for hearing on 5 October. But the petitioners requested the court that since they were required to submit returns by 30 September, they should be allowed to file manual returns on the basis of old rates.
FBR’s Tax Target
This request will be examined on the next date of hearing, however, till then, if the petitioners chose to submit their returns of income tax for tax year 2022 without making payment of the differential amount pursuant to impugned amendment. The interim relief can put the FBR’s first-quarter tax target in jeopardy, as it remains around Rs.130 billion short of the goal.
Despite the grave situation on the tax collection front, the FBR has received only less than 1.5 million tax returns by the end of the deadline for submission of income and asset details with nearly one-third of these have made no tax payment. While this time around the return filing largely remained smooth due to better functioning of the technology arm of Federal Board of Revenue (FBR), confusion over policy actions taken in the budget coupled with the situation arising out of floods held back taxpayers from fulfilling their obligation.
It is reported that so far about 1.45 million individuals, Associations of Persons (AOPs) and companies had filed annual tax returns, constituting hardly 40% of the taxpayers who submitted the returns during the last tax year – 2021.
State Of The Economy
In the three categories, the companies, which should have been more compliant, turned out to be less enthusiastic about the filing of returns. Data compiled by the FBR showed that so far about 4,600 companies had filed annual returns. Of those, 3,750 filed nil returns. Nil returns mean that the companies did not do any business throughout the year.
One of the reasons for the lower number of returns filed by the companies is said to be that the fiscal year of many companies ends in December, unlike the normal July-June cycle. However, the number of companies filing returns has significantly decreased compared to the previous tax year when over 67,000 firms submitted the tax returns.
The ratio of return-filing companies this year was less than 7% compared to the previous tax year. A reason for the delay in filing income tax returns for tax year 2022 is the ambiguity in declaration of the value of properties purchased and sold during the year. Tax consultants were facing problems in working out liabilities on account of transactions of immovable properties. The Weekender