Monday August 15, 2022

Explainer: What is super tax?

The government used the term ‘super tax’ that got attention of social media users who were seen inquiring about this new tax

By Our Correspondent
June 25, 2022
Representational image. Photo: The News/File
Representational image. Photo: The News/File

KARACHI: Prime Minister Shehbaz Sharif announced super tax on large-scale profitable industries of Pakistan to revive the IMF bailout package and to resolve chronic balance of payment crisis.

The government used the term ‘super tax’ that got attention of social media users who were seen inquiring about this new tax. Economic experts have shared their views on imposition of the tax and its effects on economic condition of the country, while opposition party Pakistan Tehreek-e-Insaf (PTI) has claimed that the super tax would bring a wave of inflation in the country.

Historically, the super tax used to be a part of the income tax ordinance 1979, was temporary and penalised for specific urgency. But policymakers relied more on super tax to meet tax collection targets.

Taxation expert Ashfaq tola defined super tax as, “It’s a special tax that is imposed along with usual taxes.” Another expert Dr. Ikramul Haq was of the view that governments impose super taxes, but the reason behind aren’t told to the public. He said as the government has given the reason behind the new tax, saying it would be used for poverty alleviation in the country, it would be called as ‘levy’ now and should be passed from both the Houses.

As a desperate move to revive the IMF program, govt is taking unpopular measures, including mammoth raise in petroleum, diesel, gas and power tariff hike to phase out energy subsidies, leading to economic meltdown and stagflation. Therefore, government imposed one-time 10 percent tax named super tax on large-scale industries in retrospective effect on outgoing fiscal year to raise over Rs400 billion fiscal deficit financing.

According to Finance Minister Miftah Ismail, these tough measures needed “to phase out the previous four record budget deficits under PTI govt”. Ashfaq Tola said this tax is imposed during fragile economic conditions and governments can also impose it during economic emergencies.

Ikramul Haq said the government has imposed it to increase tax collection; however, he termed it a burden on tax-paying sectors. “There can be other ways also to collect money such as removing tax relief in the budget or reducing non-development expenses.” He proposed that agriculture tax, wholesalers, and traders should be brought into the tax net, rather imposing new taxes on already tax-paying sectors.

According to the government, super tax will be levied on 13 sectors, which include sugar, steel, cement, oil and gas, fertilizer, cigarettes, chemical, automobiles, banks, textile, LNG terminals and beverages, airlines.

In addition to the above, the poverty alleviation one-time tax levied in the Finance Bill 2022 as: 1pc tax on the income between Rs150 million to Rs199.99 million – 2pc tax on the income between Rs200 million to Rs249.99 million – 3pc tax on the income between 250 million to 299.99 million – 4pc tax on the income of 300 million & above.

Federation of Pakistan Chambers of Commerce & Industry (FPCCI) acting chairman Shabbir Mansha termed the decision to impose super tax “destructive” for industries. “Industries are already burdened with gas, electricity, and high interest rate, and this super tax will retard development of the sector as well as overall economic development,” he added. He was of the view that companies would transfer burden of the super tax on the public, which would fuel inflation across the country.

Ikramul Haq warned of negative impacts on industrialisation and corporation because of this new tax. The newly-elected govt chasing politically and economically a difficult balance between fulfilling the IMF’s tough conditionalities and meeting public expectations in the election year.

This seems an uphill task for the policymakers to post high economic growth of 5 percent and controlling CPI inflation to 11.5 percent and fiscal deficit to 4.9 percent simultaneously under ongoing inflationary phenomenon which is a difficult proposition.

The Planning Commission has projected growth of 5 percent for 2022-23 as a result of “contractionary” fiscal policies to be pursued in the upcoming budget, effects of high inflation and fears of rising cost pressure due to anticipated hike in the policy rates and deterioration in current account deficit (CAD) would be a challenge for next year.

This super tax would negatively affect the corporate sector, which is the backbone of the financial & economic engine. It is expected that this could increase layoffs, and poverty might rise under ongoing hyperinflation.

It will also accelerate the cost of industrial sector facing brunt of monetary tightening and historic energy and petroleum prices and further hit private sectors borrowing capacity as competitiveness has been deteriorated with rest of the world. The government has increased petroleum prices thrice in a month and the prices of gas and electricity are also on a surge. In this current economic situation, it’s yet to be measured the impact of this super tax in coming days. A user wrote the government has to ensure two things; one the industries don’t exploit the public by collecting this tax by them, and second to stand by their decisions.