Look at the way the elite reacted, the stock market moved up when petroleum prices were increased as it impacted the public, it caved down when elite tax on income was enhanced.
In the case of petro-leum products, the impact was recoverable from the consumers, but when tax on income is increased it is on the profit of the corporations. So, ethically, and morally they cannot recover it from their consumers. This tax would lower their profits which the vested interests are not prepared to accept.
This is even though around 500 odd companies registered at Pakistan Stock Exchange posted a cumulative profit of over Rs1,000 billion last year and in view of high manufacturing growth this fiscal it is likely to be higher. Almost 90 percent of this profit came from 50-60 registered companies.
These are the companies that determine the way the market moves.
It is perhaps the first time that the government mustered the courage to target the rich as well in generating revenues. At a time when most of the population is finding it hard to manage their monthly budgets, the elite class is still earning hefty profits. They do not want to share their booty with the nation.
The state is not asking them to part with their entire after-tax profits, which they earned on routine tax. It has just asked them to deposit 10 percent of their profit in the national exchequer. This is not a big deal, after all the poor would face higher petroleum, power and gas rates that are likely to make them broke.
Businesses would incorporate the higher rates of petroleum and the utilities in their cost. They would suffer no loss, rather their profits would increase. They will not go broke by paying additional tax on incomes.
Yes, the incomes would be lower, but the nation is in financial trouble and the elite must cooperate with the state in generating higher revenues. Instead, there is massive hue and cry from those with vested interests. Paying taxes is something they want to avoid at any cost.
On Friday last week, Prime Minister Shehbaz Sharif announced that the government would impose a 10 percent “super tax” on large-scale industries to increase revenues and to support the country’s poor, who were being crushed by the rising inflation.
It should be mentioned that the poor have already been milked to the core and are not able to share further burden.
However, some analysts are predicting that this super tax would result in a new price hike. This is illogical as this tax is on pure income and not the inputs.
If government writ were ever needed it is now. Regulators must ensure that prices are not hiked to recover income tax.
This is the first step towards fair distribution of income. The rich were getting richer every year, while the poor were becoming poorer.
The 10 percent additional tax on 13 sectors and 4 percent additional super tax on all others would reduce the speed with which the rich were accumulating wealth. This tax would spare the poor from further increase in indirect taxes.
Another benefit of the new tax is that it will check inflation as a lot of money would go out of circulation. For the listed companies, a 10 percent cut in dividend income is tolerable for the investors. It will not hurt investor sentiments. As far as new investments are concerned, those dried up decades back.
Greenfield projects in last two decades can be counted on fingers. Whatever investment was made, it was to enhance the capacity and technology of existing projects. This is because the existing players were making huge profits and reinvested in existing projects to further enhance earnings that were ensured through cartels and monopolies.
There were 23-24 cement companies in Pakistan at the start of the century with a total capacity of 20 million tonnes.
Today, the number of companies is almost the same, but the total production capacity has increased to over 65 million tonnes. All other remaining 12 sectors have almost the same ownerships as in the year 2000.
Government should remain firm on its reform agenda and be prepared for some agitation on funds discreetly provided by some vested interests.
– The writer is a staff member