PAKISTAN is not new to natural disasters and catastrophes. Earthquakes, cyclones, avalanches, floods and droughts have struck the country many times.
The earliest memory is of the pre-Partition days when an earthquake of 7.7 moment magnitude scale killed 60,000 people in Quetta in 1935. In later years, successive governments were quick to levy all kinds of disaster taxes on individual and corporate income should an opportunity present itself.
As for the ongoing pandemic, the Federal Board of Revenue (FBR) had earlier eyed the 40,000 holders of listed shares or “Pakistan’s super wealthy who have benefitted for over two decades from the stock market to be slapped with one-time 10 per cent wealth tax (coronavirus tax) in Budget 2020-21”.
It was said that the taxmen thought they could collect several hundred billion rupees from “those super wealthy”. There were also suggestions that if the effects of Covid-19 continued in the first quarter (July-Sept) of 2020-21, proposals like the coronavirus tax on the pattern of wealth tax would be considered to bring the super-rich into the tax net on a temporary basis.
Successive governments have been quick to levy new taxes on individual and corporate income every time a catastrophe hit the country
The FBR was looking at “the few blue-eyed companies” mostly related to the medical equipment and machinery which, it alleged, pocketed billions of rupees in the wake of tax exemptions on the import of 61 items. This was despite the fact that the FBR had issued a notification on March 20 to exempt 61 goods related to the medical equipment and machinery from sales tax for three months. It suspects that the importers misused the facility for their own enrichment.
But if the tax planners attempt to reach into the pockets of citizens or companies to limit the impact of the coronavirus, they might stir up a hornets’ nest. The same is happening in Egypt where a draft law — due to take effect from July pending parliamentary approval — imposes the coronavirus tax deductions across public and private sectors on employees with monthly net incomes of more than 2,000 Egyptian pounds (around $125).
Yet stock investors have always been the most panic-prone herd. As the word went around that the pandemic might force the government to impose an additional tax on investors or companies, or both, to reduce the impact of the disaster on the economy, investors ditched stocks in the last half hour on Wednesday. That saw the KSE-100 index spiral downwards to negative seven points from a high of positive 250 points.
Even as finance czar Dr Abdul Hafeez Shaikh assured investors that no new taxes would be imposed, they thought it wiser to err on the side of caution. They sold off shares on Thursday as well, which saw the index sink by another 282 points. In its 2020-21 Budget Preview, Topline Securities asserted that the government was likely to prioritise relief amidst Covid-19. It was believed to have its focus on job creation and relief to businesses.
“As per news reports, the government is likely to earmark Rs1 trillion for dealing with Covid-19 and for providing relief to the business community,” the brokerage firm stated. It said the federal budget was likely to be “neutral to positive” for the stock market where the government would prioritise relief and growth over fiscal discipline to re-energise the economy in the aftermath of losses incurred due to the pandemic.
Positive budgetary measures were likely for tractor manufacturers and fertiliser and cement makers. The budget was thought to remain largely neutral for banks, independent power producers and steel, textile, pharmaceutical and consumer goods producers.
It said the coronavirus tax might come under consideration. “The FBR had initially proposed a one-time coronavirus tax on Pakistan’s corporate sector. However, it was shot down by the Ministry of Finance,” the brokerage said. “However, the announcement of such a measure cannot be ruled out and a one-time purpose-driven tax, like super tax, may be imposed on the corporate sector to contain the fiscal deficit,” it cautioned.
But companies and their representative bodies have been clamouring for tax breaks for businesses hit by the coronavirus-induced recession. The convener of the Federation of Pakistan Chambers of Commerce and Industry’s (FPCCI) central standing committee on insurance, Dr Murtaza Mughal, had asked the government in mid-March to increase the budget of the health sector in the wake of the coronavirus outbreak. He also suggested that all the taxes imposed on health products and services should be waived so that the masses could access the same.
The Pakistan Stock Exchange (PSX) budget proposals for 2020-21 released in late April did not ask for specific incentives to provide relief to investors or corporate entities to combat the vagaries of the pandemic. PSX Chairman Sulaiman Mehdi, while talking to Dawn, had pointed out that most industries had received incentives, special packages and relaxations owing to the devastation caused by the pandemic and the PSX also deserved a fair deal.
One principal demand of the PSX was to eliminate the capital gains tax (CGT) for the next 12-24 months. If that was not possible, the PSX demanded, the government should reduce CGT rates for holdings of up to 12 months at 10pc and remove it altogether for holdings of more than 12 months.
Published in Dawn, The Business and Finance Weekly, June 8th, 2020