Taxing the rich?

In a bizarre attempt to shore up revenue, the government has imposed a blanket tax on performing industries. The 10% ‘super tax’ primarily on country’s production cartels including cement, steel, sugar, oil and gas, fertilisers, LNG terminals, textile, banking, automobile, chemicals, beverages and cigarettes would certainly have a snowball impact, and its after-affects in the form of inflation and increase in cost of production be surely felt. Thus, the impression that the state is taxing the ultra-rich is no more than a mirage. The prevalent system of supply and demand, and revenue generation, will make it nightmarish to the core. An instant outcome with hours was evident as the KSE-100 index crashed, losing 2,000 points and sinking to 41,100.

It means the tax slab has not been received well, and this time around the ruling dispensation might have to bite the dust. This tax was, nonetheless, on the anvil as intricate talks with the IMF were underway. The idea was to tax the high-net worth individuals in an earnest attempt to please the burdened middle class. Thus, people and businesses with annual income exceeding Rs150 million up to Rs380 million per annum were supposed to pool in the treasury with a smart tax ranging from 1 to 4%. But this new super tax is apparently a bolt from the blue and targets the prime production houses of the country. This nervously comes at a time when energy and oil prices are at an all-time high, and growth targets have been revised down.

It is estimated that the corporate income tax and investor tax will now exceed 50% and 55%, respectively. And this will be the highest in this region, leading to flight of capital and impeding foreign investment. What is feared is that industrial production will slow down and ultimately lead to unemployment. This budgetary-correction has come close on the heels of the federal government posting a deficit of 8.95% of the old GDP. This will inevitably add to the gap between expenditure and resources. Is our economic fabric strong enough to be slapped with new taxes? The answer rests in ensuring a foolproof collection machinery, and one that is not culpable. With the current account deficit reaching $17 billion, along with reserves of less than $9 billion, the economy is in a fix. But this super tax is set to add more woes than bring in relief.