Finance Minister Miftah Ismail on Friday announced new fixed taxes on retailers to reduce the budget deficit and explained the “super tax” on 13 major industries announced by the prime minister that shook the stock market.
Addressing a National Assembly (NA) session convened to close the budget debate, Ismail said the country was no longer on the verge of default as it was on the path to progress. He had presented the budget for the financial year 2022-23 with an expenditure of Rs 9.5 trillion on June 10.
As the budget debate began today in the NA, Ismail said most of the recommendations made by Senate and NA lawmakers in previous sessions have been incorporated into the budget.
During his address he referred to the taxes announced by Prime Minister Shehbaz Sharif earlier in the day, Ismail told the House that no indirect taxes had been imposed and no consumption tax had been imposed.
“We taxed the rich. A lot of the revenue will be collected through this so that we don’t have to ask others for money and we are able to reduce our budget deficit,” he said. declared.
Then, on a lighter note, he claimed credit for imposing taxes on businesses owned by Prime Minister Shehbaz’s son.
“And my businesses will also pay Rs 200 million more in taxes than before and so if we ask others to pay more taxes, we too are contributing to that. [cause]“, said the Minister of Finance.
He said the government is committed to the IMF that the primary deficit of 1.6 trillion rupees recorded this year will not only be reduced but that there will be a surplus of 153 billion rupees.
To achieve this, as well as self-sufficiency, an additional tax of 1pc would be imposed on persons and entities whose annual income exceeded Rs 150 million due to poverty alleviation. Similarly, he added, those with an annual income above Rs200m would be subject to an additional tax of 2pc, those earning more than Rs250m at 3pc and those with an annual income above Rs300m would be taxed at 4pc. of their income.
“This is a one-time tax for fiscal year 2022,” he added.
Additionally, the minister said, the government has identified 13 sectors that have made significant profits this year.
“And we have decided that businesses which have income above Rs 300 million will be subject to a 10% super tax for one year,” he said.
The Minister said that companies working in the sectors of cement, steel, sugar, oil and gas, fertilizers, LNG terminals, textiles, banking, automobile assembly, cigarettes , beverages, chemicals and air transport should pay this tax.
Entities in other sectors, he said, would have to pay this one-time additional tax amounting to 4% of their income.
Moving on to the details of other taxes, he said there were about 9,000,000 retail stores in Pakistan and the government wanted to bring 2,500,000 to 3,000,000 of these stores into the tax net.
To that end, he said, a new regime had been introduced under which the income tax and sales tax these stores had to pay had been “fixed with their electricity bills”. He added that under the initiative, small shops would have to pay a fixed tax of Rs3,000 per month and large retailers Rs10,000.
“After that, they won’t be questioned about anything else,” the minister added.
Additionally, he said retailers who sold gold and had stores of 300 square feet or less would have to pay a fixed income tax and sales tax of Rs 40,000. And for larger stores, sales tax has been reduced from 17% to 3%, he added.
Ismail said the withholding tax on gold sold by individuals to goldsmiths had been reduced from 4 to 1 pc.
He announced that a similar flat tax scheme would be announced for estate agents, builders and car dealerships.
“This tax is on their income and not on their expenses, and that’s why it will not increase inflation but will increase our income,” Ismail said.
He added that the government had removed the withholding tax requirement on companies operating in the IT sector with sales below 80 million. He added that the tax on venture capital funds invested in the IT sector had also been removed.
Regarding oil marketing companies, Ismail said such entities had to pay a minimum tax of 0.75pc, which had been reduced to 0.5pc.
Additionally, he said, a 5% commission was cut on outgoing indenters at the time of receipt. “That has now been reduced to 1pc.”
Overseas Pakistan who had a NICOP would be considered included in the list of active taxpayers so that they do not have to pay additional taxes when buying property, Ismail said, adding that a provision for a 50% reduction in capital gains tax for those who had allotted plots while in service was originally removed from the budget, but now it has been restored.
Families of martyrs and war-wounded would be exempt from tax on plot income, Ismail said, adding that sales tax on hides and surgical instruments had also been waived.
The Minister also referred to the relief measures taken by Prime Minister Shehbaz, including “petrol sasta, diesel sasta‘ and a program of supplying wheat flour, sugar and ghee to utility shops.
Ismail also told the house that the tax target, originally set at Rs7,004tr, has been increased to Rs7.47tr. At the same time, he added, the non-tax revenue target set at Rs2tr had been revised down to Rs1.94tr.
He announced that the government would give Rs4.37tr to the provinces.
“After all these expenditures, the federal government deficit would stand at Rs4.55tr and the total deficit at Rs3.78,” Ismail said.
The minister recalled that when former Fata merged with Khyber Pakhtunkhwa, the tribal areas were granted tax exemption “of any kind” until 2023.
He said the government intends to introduce a bill to exempt residents of these areas from paying income tax.
However, he added, companies and industries operating in these areas would be placed in the tax net.
“Farmer friendly budget”
He announced that the cottonseed meal sales tax (khal) had been scrapped and labeled as a “farmer-friendly” budget.
“I don’t think a more farmer-friendly budget has come in the last 10 to 20 years,” he said, adding that it reflected the values of the ruling coalition government.
The minister said that as a result of this “farmer-friendly” budget, the country would become self-sufficient in the production of edible oil, wheat and other commodities. “These will be long-term benefits,” he added.
Ismail said funds for farmers in the budget should not be seen as subsidies but as an investment. “We believe that if we invest in farmers, they will give us the best returns.”
“A Bad Fiscal Year”
The minister accused the PTI government of bringing the country to the brink of default and said “we saved the country from default”.
“I want to give this good news to the nation today that the country […] it is no longer on the path to default but on the path to progress,” he said.
The minister said he believed the current fiscal year would be considered bad in the history of Pakistan as “we have strayed from many of the targets and have incurred a large budget deficit.”
He said that “the federal government posted a deficit of 8.95% of the old GDP (gross domestic product)”, adding that this showed the wide gap between spending and resources in the country. “And then we have to take funds from others,” Ismail said, adding that it was for this very reason that he had to make several trips abroad immediately after becoming finance minister in April.
“And then when we talk about freedom, independence and self-reliance, what kind of independence is that for us to take loans worth SR20 trillion in three to four years?”
Blaming former prime minister and head of the PTI, Imran Khan, for taking out such large loans during the short period of his tenure, Ismail said, in doing so, “we are not moving towards independence but towards ‘slavery”.
And then, Ismail said referring to Imran, “you shouldn’t lecture the people we’re going to [true] independence”.
He also criticized the Imran-led PTI government over the fuel and energy subsidies it introduced in February.
The grants, he said, were worth 120 billion rupees and thanked the PML-N partners in the established coalition for accepting that the government could not bear this expense at a difficult time like this.
“It was a difficult decision to end the grants,” he said and again thanked the coalition partners for supporting the decision. “They all thought it would affect the political capital, but all agreed that Pakistan was the first priority.”
“The resumption of the IMF program is necessary to save the country from default”
Ismail estimated that the current account deficit in the current fiscal year would have reached around $17 billion, adding that the meager reserves of around $10 million could not sustain this deficit.
And that’s why it was necessary for the International Monetary Fund’s (IMF) $6 billion loan program to be resumed so that the country could be rescued from default, Ismail explained.
Sharing details of the government’s talks with the IMF in recent days, he said the lender had given information that Pakistan had “made significant progress in FY23 figures”.
Ismail concluded his speech by thanking the prime minister, his team and others, including “the international institutions whose assistance to Pakistan will strengthen”.