As Pakistan holds discussions with the International Monetary Fund for a bailout, Pakistan intends to levy a “super tax” on crucial industries including cement, drinks, chemicals, steel, and tobacco to increase income.
The statement was made on Friday during a televised speech by Prime Minister Shehbaz Sharif. In order to comply with the lender’s conditions, local governments have thus far increased fuel prices, power tariffs, taxes, and announced austerity measures. The IMF’s assistance will help prevent a possible default and open the door for more funding from friendly countries and other international organizations. In order to pay off debt and finance imports, Pakistan needs at least $41 billion over the next 12 months.
In the midst of soaring imports and surging commodity prices, Pakistan’s economy is struggling with its failing finances. Less than two months’ worth of imports can be covered by Pakistan’s current foreign exchange reserves, which have dipped below $10 billion. While its currency has declined by around 17% this year, its headline inflation has accelerated to the greatest level in more than two years in May.
The International Monetary Fund may not be persuaded to renew its loan program by Pakistan’s pledge to reduce its deficit by cutting spending, Citigroup Inc. economists said earlier this month.
Super tax causes instability in the Stock Market
Pakistan’s KSE 100 index fell 4.8% on Friday, market data showed, after the government announced a new super tax on industries in a bid to raise revenues and clinch an IMF deal.
The market fell 2,053.35 points to 40,663.62 before being suspended for lunch and Friday prayer break.
Following Shehbaz Sharif’s announcement to impose a 10% “super tax or poverty alleviation tax” on large-scale enterprises, the Pakistan Stock Exchange (PSX) plummeted on Friday.
As a result of intense selling pressure following the opening bell, the KSE-100 index fell by a staggering 2,053 points at 12 o’clock.
According to the PSX Rulebook, trade in all securities is suspended for a predetermined amount of time if the index moves 5% above or below its most recent close and remains there for five minutes. According to experts, the stock market suffered as a result of the increased taxes.
Which large scale industries will Super tax?
The prime minister said that a 10% super tax will be imposed on thirteen major industries:
- Cement Industry
- Steel Industry
- Sugar Industry
- Oil and Gas
- Fertilizer Industry
- LNG terminals
- Textile Industry
- banking Sector
- Automotive Industry
- Chemical Industry
What did the PM Shehbaz Sharif say?
The prime minister said that a 10% super tax will be imposed on thirteen major industries, including the banking sector, the car, cement, steel, sugar, oil and gas, fertilizer, and cigarette business, in a speech to the country following a meeting of his economic team.
According to him, there will be a 1% tax on incomes over Rs 150 million, 2% on incomes over Rs 200 million, 3% on incomes over Rs 250 million, and 4% on incomes over Rs 300 million.
The event occurs just days after Pakistan signed an agreement with the IMF to increase FBR’s tax collection target for the upcoming fiscal year by Rs438 billion, from Rs7,004 billion to Rs7,442 billion.