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Pakistan Strategy: Super tax is the new stopgap measure in Finance Bill FY23

  • Pakistan government announces stopgap measure of 10% super-tax to retrack IMF loan

  • The move is a top up to the proposed poverty tax from latest budget announcement

  • More clarity awaited while initial estimates reveal corporate profitability attrition of 6-16%

Intermarket Securities
26 June 2022

Pakistan’s government announced a stopgap measure of a 10% super-tax to enhance revenue collection and achieve the fiscal deficit target for FY23. The move puts a one-off super tax on corporate earnings but also brings Pakistan closer to IMF programme resumption and avoiding default. This move tops-up the budgetary proposition of a poverty alleviation tax of 4% on companies, earning more than PKR300mn, in nearly 13 sectors.

  • Industries belonging to Cement, Steel, Sugar, Oil & Gas, Oil Refining, OMCs, Fertilizer, Textile, Automobiles, Tobacco, Beverages, Packaged Milk, Juices, Chemical, Airline and LNG Terminals will be subject to this one-off super tax.

  • Exempted sectors from the super tax are Construction, IT and Media as the government feels such sectors are not making windfall earnings and/or largely impact people belonging to the low-income segment.

  • Other amendments in the recently proposed Finance Bill 2023 suggest a lower turnover tax of 0.5% on OMCs (previously: 0.75%) and an efficient taxation mechanism to bring retailers, realtors and restaurant owners into the tax net.

  • Non-bank corporates will face a 39% taxation for Tax Year 2022. We await clarity from the revised Finance Bill particularly for Banks which see much higher taxation.

As per the revised budgetary changes, the FBR taxation target has been revised upwards by 6% to PKR 7.4tn by increasing the contribution from direct taxes.

Simultaneously, some news flows have quoted a higher aim of petroleum levy (PDL) on fuel prices to PKR50/litre, which will effectively enable achievement of PDL collection target of PKR750bn for FY23. We believe, that this stopgap measure of a super tax will fill a lot of gaps in the fiscal targets, revealed in Budget FY23. We await the revised Finance Bill 2023 to reflect better on the proposed changes, however, this move solidifies the government’s efforts in resuming the IMF programme.