The government may impose a 5% special income tax on manufacturers to create fiscal space for giving a relief of billions of rupees to the traders, bankers, brokers, and real estate players.
Prime Minister Shehbaz Sharif on Wednesday did not vet a proposal to slap regulatory duties on 860 product lines in return for allowing their import and at the same time generate revenue to fund tax waivers for five influential sectors of government.
They said that the proposal was still on the table and another meeting would be held to convince the prime minister to lift the ban on imports in return for imposing duties.
Against another proposal to further increase the federal excise duty on cigarettes in the range of Rs100 to Rs300 per thousand cigarettes, the PM gave a directive to further enhance the tax.
A number of meetings had been held over the past few days in the finance ministry and a meeting was held at the PM House on Wednesday to finalize the mini-budget.
They said that the government was considering slapping 1% to 5% special income tax on those manufacturers that had an annual income of Rs50 million and more but they exported less than 10% of their production.
The special income tax will replace up to 4% super tax but its applicability will begin from Rs50 million income instead of Rs150 million in the case of super tax.
The purpose of special income tax is to raise money to compensate for the losses that the government is incurring to appease the affluent segments of society.
However, it may further discourage industrialization in Pakistan. Manufacturing is already heavily taxed that is paying three times more than its share in the total size of the economy.
“There is a proposal that 4% super tax should be replaced with up to 5% income tax on those manufacturers who do not export anything,” Finance Minister Miftah Ismail.
The government is going to hurt the industrial sector the second major sector that creates jobs after agriculture to compensate for the tax relief that it is planning to give to traders, bankers, stock market brokers, real estate dealers, and transporters.
The total adverse revenue impact of the relief to these five sectors is around Rs75 billion.
The International Monetary Fund (IMF) discourages Pakistan from giving any tax relief but the government has assured the lender that any relief will be compensated by an equal amount of additional taxation.
The government is considering two options. First, all five sectors should be given relief simultaneously and the impact should be neutralized by taxing other sectors. Second, the relief should be limited to traders and real estate dealers in the first phase to be enforced before August 29.
“The IMF executive board meeting for the combined seventh and eighth reviews under the Extended Fund Facility has been set for August 29,” said Esther Perez, IMF Resident Representative, on Wednesday.
Speaking at a seminar, Finance Minister Miftah Ismail on Wednesday urged every company to export 10% of its products to earn foreign exchange and assured them that the government would facilitate the exporters.
Two months ago, the government had slapped a one-time 1% to 4% additional “poverty alleviation tax” on people and firms earning Rs150 million to Rs300 million a year for the sake of another Rs120 billion.
Companies falling in this bracket will either pay the poverty alleviation tax or the super tax, except for those 13 sectors that are subject to a 10% super tax.
