KARACHI:
The government imposed an additional 10% tax on a dozen different industries to collect additional revenues as mandated by the International Monetary Fund. As expected, the business community largely criticised this decision. Although this is a step in the right direction to create a fairer taxation system, the government’s claim that the decision is aimed at preventing low-income families from further suffering seems exaggerated. There is a high risk that businesses aiming to maximise profits will pass the burden onto their customers further adding to inflation. There is also an increased likelihood of firms resorting to mass redundancies to cut their costs if they pay the tax out of their profits.
In the past, the fertiliser industry has passed the burden onto its consumers instead of paying from its coffers. An increase in urea prices will increase the cost of growing crops, which will not only harm the farmers but also raise the prices of agricultural products. Pakistan depends significantly on agricultural exports, which may become less competitive in the international market. Therefore, what may start as passing the burden to the consumer may have a ripple effect on the entire economy.
The government should make sure that the super tax is not counter-productive by ensuring that the selected industries pay the tax out of their pockets instead of passing the burden onto the consumers. The current situation should serve as a wake-up call for the government to implement structural reforms urgently. The agriculture sector must be reformed. Also, the informal economy should be recognised, and paperwork and other procedures should be relaxed. This will widen the tax net and increase tax revenues, which are crucial for long-term economic stability.
Asad Aziz
Khushab
Published in The Express Tribune, June 29th, 2022.
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