The Super Tax was introduced for the first time in 2015. It was initially supposed to be a temporary measure to fund Pakistan Army’s Zarb-e-Azb operation however it has been reported that it will be renewed again for its 3rd consecutive fiscal year.
The government has so far been collecting 4 per cent Super Tax from banks and 3 percent from other companies earning more than Rs500 million annually. The Super Tax was meant to end by June this year. Instead, the FBR has proposed to expand it to the third year as well as increasing the net income tax rates and sales tax rates. The Overseas Investors Chamber of Commerce and Industry (OICCI) -a group of 195 multinationals operating in Pakistan – had called on the government to abolish super tax in the upcoming federal budget for 2017-18.
Large businesses complain that the super tax unfairly hits at them, it increases the cost of doing business for them, while the smaller unregulated businesses making millions are able to avoid this often through ‘friendship’ with local tax officials.
It was argued then that the burden of the IDP’s should be taken up by the whole country rather than only the fraction of people who were receiving salaries from corporations.
A similar tax was imposed in 2009 which only targeted corporate income. It was dubbed the IDP tax because its purpose was to collect funds for the internally displaced people of Swat valley following Army’s operation in the region. The tax was termed ‘unlawful’ by the Sindh High Court as it targeted only the middle class and was discriminating against salaried people. FBR was subsequently ordered to reimburse those who were targeted by the IDP tax.
It was argued then that the burden of the IDP’s should be taken up by the whole country rather than only the fraction of people who were receiving salaries from corporations. The same can be said about this Super Tax.
The Super Tax has a fixed base focused on the corporations and banking sector and it has now been proposed by the Federal Board of Revenue (FBR) that it should be expanded to high net-worth individuals. This measure once again is being perceived as being discriminatory against the middle class and if enforced it will likely have detrimental effects on the income of those who receive a salary from corporations. Since the government is not able to tax the rich feudal landlords – many of whom sit in parliament- they are hitting at those salaried classes and regulated businesses already in their clutches. Agriculture makes up 21 percent of Pakistan’s gross domestic product but makes for less than 1 percent of cumulative tax collection.
Agriculture makes up 21 percent of our gross domestic product but makes for less than 1 percent of cumulative tax collection.
Even Pakistan’s corporation tax at 30 percent is higher than many western countries, UK corporate tax is only 20 percent and they are aiming to bring it down to 18 percent. The aim is to facilitate growth of companies and to expand the number of companies in the economy so that the government would collect more revenue from them.
In addition to this, FBR has proposed an increase of 20 percent from 19 percent in the sales tax for unregistered persons. Currently, the standard sales tax rate is 17 percent. Above that, the government taxes 2 percent ‘Further Tax’ from unregistered salespersons. Now the FBR has proposed to increase the Further Tax to 3 percent making the total sales tax 20 percent. Only a fractional 150,000 people are registered with the sales tax department hence a vast majority will now pay 20 percent.
In the backdrop of these recent proposals and the fact that for the past decade the FBR has never once met its tax collection targets; it is to be noted that Pakistan currently has 71 billion dollars of external debt alone. The government has yet to lay out a comprehensive strategy as to how it intends for the loans to be paid back given the logstanding inability of the country income tax department officials to collect tax revenues.