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Thursday, February 15, 2024

Exploring the effectiveness of super tax

Inferences about the effectiveness of super tax have been presented with the help of corporate and effective tax rates

A detailed analysis of Pakistan’s corporate and effective tax rates has been presented by a PhD scholar in her Twitter post. It includes exploring super tax by stated Corporate Tax Rates 2015-2021, amounts companies are actually making and paying in taxes, and difference between stated and effective tax rates.


She shared her stance with the support of actual tax data which demonstrates why increase in corporate tax rates is not a big deal for corporations working in Pakistan as they have already employed legal means of tax avoidance.

Read more: The misuse of taxation in Pakistan

Her analysis is based on all corporations filing taxes within Pakistan, roughly 44,000 on average every year. She presented a table showing tax rate according to the Income Tax Ordinance of Pakistan.

This table shows the turnover reported by all corporations combined from year 2015-2021 in Pakistan. Turnover means the amount of money (revenue/sales) made by a company over the year.

Next table shows the amount that is declared as “taxable income” by the companies on their tax returns. Taxable income is the amount on which the tax rate is applied, it is 4-7% of the turnover. Taxable income is calculated after permitted deductions according to the law.

She then gave an interesting inference, “if tax rates were applied as such to taxable income, which is the current hue and cry over that being 55% post super tax, this next part of the table shows how much tax Pakistan should have collected over the years from 2015-2021.”

She continued with the table and showed next part of it consisting of what the corporations have actually paid as tax for the year along with their return.  She pointed out that this is where the difference arises: the actual tax rate and the effective tax rate.

Furthermore, she stated that effective tax rate is the percent of their income that a corporation pays in taxes. “The difference is striking and based on a back-of-the-envelope calculation, for Pakistan the effective corporate tax rate comes to a maximum of 2.9%”, she added.

Next table also shows the value of tax refunds that have been claimed by these corporations over these years. Again, these refund amounts when compared with what these firms pay in taxes, are astonishingly high.

Lastly, this table shows a summary of the actual tax rates as written in the tax ordinance comparing with the rate at which the companies are paying their taxes.

Moreover, she pinpointed that it is important to keep in mind that this does not include how much is passed on to the consumers in the name of high tax expenditures and increased costs. “If you go back over the table, the results for peak COVID times are exceptionally interesting!”, she added.

She emphasized that the knowledge of how much tax companies can evade under a legal shield is the reason why there is no uproar typically except just enough for show & tell – superficial at every level.

She concluded her analysis by stating that the reason behind business community’s hue and cry is the absence of tax avoidance and deductions are not allowed against super tax. She added, “Super Tax would mean a straight tax deduction on their “ability to pay tax” and thus it pinches a lot THUSTLY – PSX reaction.”