Keeping the country solvent is an important priority, but marshalling resources for flood relief and rehabilitation needs to move up the ladder.
By Ahmer Kureishi
ISLAMABAD: The administration of Prime Minister Shehbaz Sharif is on its toes keep to the economy solvent, as evidenced by the enactment of a new law the other day to keep the government on budget.
But it is yet to wake up to the terrible destruction a near-biblical deluge is wreaking on vast areas of the country across three provinces: No revenue measures are on the horizon to fund flood relief or rehabilitation – except Prime Minister’s Flood Relief Fund.
The current fiscal’s budget of the government of Prime Minister Shehbaz Sharif broke when it folded in the face of traders threatening agitation, and suffering a net revenue loss of approximately PKR 15 billion when it walked back a fixed tax on all but except the largest retailers.
Proposed to be collected through electricity bills, the levy – mandated through the Tax Laws (Second Amendment) Ordinance, 2022 – was expected to yield PKR 42 billion in annual revenue. Letting small to medium retailers off the hook meant collection would plummet from PKR 42 billion to PKR 27 billion, leaving a hole worth PKR 15 billion.
The government gave in to the demands of the traders – believed to be one of the main constituencies of PM Sharif’s Pakistan Muslim League – Nawaz (PML-N) party, after party vice-president Maryam Nawaz Sharif fired a tweet in support of their cause.
Promulgation of the Tax Laws Second Amendment Ordinance 2022 – looking to to create new revenue streams totalling to about PKR 38 billion – thus became necessary to keep alive Pakistan’s hopes of the revival a stalled International Monetary Fund (IMF) bailout. Revival of the Fund’s EFF program is in turn essential to avert default on the country’s external obligations.
While keeping the country solvent is an important priority, recovering from the destruction caused by the floods promises to be a herculean task, calling for mobilisation of immense resources.
In any case, under the law, the Federal Excise Duty on un-manufactured tobacco has been enhanced from PKR 10 per kg to PKR 390 per kg. Also enhanced has been tax rate on Tobacco processing (to fetch PKR 2 billion), and tax on locally manufactured cigarettes.
The Federal Excise Duty on locally manufactured cigarettes has been enhanced from PKR 5900 per 1000 sticks to PKR 6,500/1000 sticks for Tier-1 and from PKR 1850/1000 sticks to PKR 2050/1000 sticks for Tier-2 cigarettes.
The FBR had initially proposed roughly half the current increase but Sharif jacked it up by 100 percent. However, no such burden has been imposed on the sugar sector, which is dominated by political families allied to the ruling Pakistan Democratic Movement (PDM) coalition, including a son of the PM.
The Fixed Tax Scheme introduced for retailers (other than tier-I retailers) on commercial electricity connection has been withdrawn with effect from July 1, 2022 and previous regime (prevailing prior to Finance Act 2022) has been restored.
As part of the understanding over the retraction of the levy on traders, the Federal Government has been empowered to make any future scheme and determine its modalities including tax rates or amounts and the date when it is brought back for retailers to collect tax on commercial connections.
The previous tax regime will remain in force until the new scheme is announced by the Federal Government.
In other measures, the advance tax rates on passenger transport vehicles have been rationalized. Passenger transport vehicles, goods transport vehicles, and vehicles of foreign diplomats and foreign diplomatic missions have been exempted from levy of Capital Value Tax.
Exemption on allowance and perquisite paid or allowed outside Pakistan by Government of Pakistan to its citizen for services rendered outside Pakistan, withdrawn earlier through Finance Act, 2022 has been restored with effect from July 1, 2022.
Exemption on income derived by Kuwait Foreign Trading Contracting and Investment Company or Kuwait Investment Authority being dividend of the Pak-Kuwait Investment Company in Pakistan has been restored as per sovereign agreement.
Subsidies provided by the Federal or a Provincial Government on natural gas to consumers, including RLNG, has been granted Sales Tax exemption. Sales Tax exemption available to local supply of single cylinder agriculture diesel engines of 3 to 36 HP, which was withdrawn vide Finance Supplementary Act, 2022 has been restored.
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