New burden of massive taxes on masses
April 01, 2011
Following a presidential ordinance, the government has increased a number of taxes. As such, 15% Flood Surcharge has been levied while the Federal Excise Duty has been increased from 1% to 2.5%. According to the ordinance, Flood Surcharge and Federal Excise Duty would be implemented from June 2011 and would be applicable on taxable income. The ordinance was implemented from 15th March 2011, following the notification of this ordinance and talks between the government and IMF.
After the implementation of new taxes by the government on the IMF directives, Pakistan has become the third country with heaviest amount of corporate taxation. It is pertinent to mention that Japan leads in global corporate taxes with 39.5% taxation, while America is second with 39.2% followed by France with 34.4 %. After the failure of Reformed General Sales Tax (RGST), the government has ended Sales Tax on fertilizer, pesticides, and tractors after which agro experts expect an additional load of Rs 200-225 billion worth of taxation. Increase in agricultural inputs would result in further increase in the prices of wheat, rice, sugarcane and other commodities and food in general
According to the decision, 17 per cent sales tax was levied on tractors and one-time surcharge on income during 15th March 2011 and 30th Jun 2011. The ordinance has increased Sales Tax over many items. The federal government expects to earn over Rs 20 billion revenue from the Federal Excise Duty and Rs 25 billion from the Sales Tax. In yet another notification, the government has announced 8 per cent Sales Tax on the actual price of sugar, which would yield an additional Rs 2 billion, with another Rs 53 billion worth of taxes in the national kitty.
To cut short, after the implementation of new taxes by the government on the IMF directives, Pakistan has become the third country with heaviest amount of corporate taxation. It is pertinent to mention that Japan leads in global corporate taxes with 39.5% taxation, while America is second with 39.2% followed by France with 34.4 % at fourth. After the failure of RGST (reformed general sales tax), the government has ended sales taxation on fertilizer, pesticides, and tractors after which agro experts expect an additional load of Rs 200-225 billion worth of taxation. Increase in agricultural inputs would result in further increase in the prices of wheat, rice, sugarcane and other commodities and food in general.
UN reports have indicated that during a short span of three years, there has been a massive increase in food prices, almost double. Director of World Food Program (WFP) Wolfgang Harbinger says despite excellent food output following the devastating floods, the Government of Pakistan had increased food prices, making poor and downtrodden suffer more. He also noted that despite devastating floods, wheat output in the central Punjab is getting better.
Pakistan is the biggest buyer of wheat, and as such regulates the price and rules the market. This is one of the prime reasons that wheat prices have never been stabilized in Pakistan. WFP is struggling to relay the message to Pakistan’s food minister that merely the better harvest of wheat crop was not suffice, as higher prices forbade its utilization by the masses. According to close estimates of WFP, this paucity of food in Sindh has reached to 21% to 23%, which is more than starved, famine –ridden Africa; while emergency ratio is 15%.
Reports have also indicated that a recently conducted survey had exposed that masses in flood affected areas were spending 70% loans on the purchase of bread, while the WFP has even confessed that it was making quite lackluster efforts for relaying its reservations and concerns to the relevant authorities. Globally, including Pakistan, there has been a 15% increase in the prices of commodities, which is 29% more than the comparative period of previous year. Many environmental factors in various parts of the world are equally responsible for this.
The grim situation does not stop here but has also caused a setback to the business of textile spinning and cotton, solely due to lack of interest in the purchase of cotton. According to member advisory committee of Karachi cotton brokers, Aamir Naseem, after these three presidential ordinances all business in the market has gone bankrupt, causing the entire market to come to a standstill. He also said that farmers had also strongly protested over these new taxes as implemented on fertilizers, and pesticides warning about a civil disobedience movement against such taxes. The federal house of trade and industries has also expressed its reservations about the increase in taxes and ‘flood surcharge’.
Similar feelings have also been expressed by Pakistan Chemicals Dyers Association; whose chairman Muhammad Haroon has expressed his apprehensions that SRO 2011 /(1) 231 of FBR (Federal Board of Revenue) will cause an increase of 20%-22% in imported items, which would grossly affect industrial production as the raw materiel is often imported.
The situation stands really grim as government increases taxation and duties instead of curtailing its luxurious attitude. The government has earned a record profit of Rs540 billion in cotton sales, while heat yielded another record Rs.400 billion. What exactly is (missing and) required is a solid centered economic and industrial policy, which should help the growth of industrial progress and bring a good amount of revenue to the national kitty.