To release two tranches worth $1.17 billion, the International Monetary Fund (IMF) has set some conditions for Pakistan, which state that the country will not give any tax relief to the people. However, the government has assured the lender that an equal amount of additional taxation will compensate for any relief. To fulfil IMF’s condition, the government has considered two options.
- First, only five sectors, including fertiliser, sugar, tobacco, and textile, will be given relief simultaneously, and the impact should be neutralised by taxing other sectors.
- Second, the relief will be limited to traders and real estate dealers in the first phase, which will be enforced before August 29.
Under these conditions, the government has decided to impose a 5% special income tax on manufacturers to create fiscal space for relieving billions of rupees to traders, bankers, stock market brokers, real estate players, and transporters. Also, the government has ordered to further increase in the federal excise duty on cigarettes from Rs100 to Rs300. However, the proposed special tax (1 per cent to 5 per cent) will be levied on manufacturers with an annual income of Rs50 million and more, who exported less than 10% of their production. This new tax will replace up to 4 per cent of super tax, but its applicability will start from Rs50 million instead of Rs150 million in case of super tax. It has been noted that few industries will be excluded from this tax under a negative list. The main purpose of this tax is to compensate the government’s loss to satisfy the affluent sectors of society.
On the contrary, economists believe that this step might increase unemployment and hurt the industrial sector, the second major sector that creates jobs after agriculture. It has been noted that the manufacturing industry is already paying heavy taxes, three times more than its share of the economy. Therefore, imposing another tax will discourage industrialisation in the country.
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