To fund war against terror, big companies set to pay Super Tax for another year

Tax was imposed in 2015 for a year to rehabilitate TDPs

ISLAMABAD: The government is planning to extend Super Tax for yet another year, generating Rs30 billion for partially meeting security establishment’s expenditures although more than 90 per cent of the population affected by the Operation Zarb-e-Azb returned to their homes.

The authorities are clearly not in a mood to withdraw the Super Tax from next financial year 2017-18, set to start from July this year, said officials in the Federal Board of Revenue (FBR).

They said that the FBR proposed that in addition to extending the tax into its third year, the government should also increase the rate of super tax to 5 per cent for banking companies.

If the government accepts FBR’s proposals, banks’ effective income tax rate would increase to 40 per cent. The standard income tax rate for the banks is 35 per cent, unlike other companies that pay at the standard rate of 30 per cent. However, companies earning more than Rs500 million annually are paying 33 per cent inclusive of the Super Tax.



These proposals were particularly opposed by all quarters concerned, particularly banks and rich politicians. They viewed the imposition of Super Tax as passing on the social service from the state to the rich.

The tax was introduced for the first time in 2015 for only a year after Pakistan Army launched Operation Zarb-e-Azb to flush out terrorists from tribal areas. “The Super Tax shall be imposed for rehabilitation of temporarily displaced persons”, stated the relevant section of the Income Tax Ordinance of 2001.

More than 90 per cent of the temporarily displaced personss have returned to their homes and the Federally Administered Tribal Areas (FATA) Secretariat stopped monthly stipends paid to the TDPs.

The military has now launched Operation Radd-ul-Fasaad to consolidate gains made during Zarb-e-Azb.

In the budget for the fiscal year 2014-15, the government imposed a special 4 per cent one-time levy on profits of banks and 3 per cent on all other companies and individuals with annual earnings of Rs500 million or more.

The government had claimed back then that the tax had been introduced for just a year to meet security needs of the temporarily displaced persons. If the prime minister approved FBR’s proposals, this would be the third consecutive year of the imposition of Super Tax.



For the new fiscal year 2016-17, the government had allocated Rs100 billion in the name of TDPs, however, Rs55 billion of that has gone to the military to meet operational expenses.

In the previous budget, the government had also extended the scope of Super Tax by broadening the definition of income. It disallowed adjusting business losses and cost of depreciation of plants and machinery against the company’s current year’s income. Major industrial units such as textile and fertilizer plants claim hundreds of millions of rupees in depreciation every year, which the government now treats as their income.

By broadening the scope of the SuperTax, the government expects to earn an extra Rs10 billion aimed at jacking up the annual collection from the levy, which will rise from Rs30 billion to Rs35 billion.

During the process of budget vetting last year, the Senate’s Standing Committee on Finance had termed the levy punishing large taxpayers.

The Overseas Investors Chamber of Commerce and Industry (OICCI) also urged the government to abolish the Super Tax in the federal budget for 2017-18.

The suggestion was part of tax proposals submitted by the OICCI – a group of 195 multinationals operating in Pakistan.