THE government has imposed ‘super tax’ on large-scale industries to alleviate poverty. This brings to mind a fundamental query: how would this tax serve to combat poverty?

Fiscal policy can be used to reduce income inequality in low- and middle-income countries, but up till now, we knew less about how it may eradicate poverty. At a time when the poor are already suffering from multiple economic issues, the federal government has urged the wealthiest to carry their weight in taxes to raise more money to pay the nation’s public spending programmes.

The implementation of such a tax option might be hampered by several concerns, and there is a possibility that capital investment in machinery will fall, reducing productivity and general prosperity. The rich would also likely pass down the tax burden by reducing the wages of the poor.

In a nutshell, the business sector, which is the backbone of the financial and economic systems, would suffer as a result of this super tax. Owing to the ongoing high inflation, it is anticipated that there may be more layoffs and a rise in poverty.

The government has opted for such a course of action primarily due to the pressure exerted by the International Monetary Fund (IMF) and to address the ongoing balance of payments crisis. The imposition of ‘super tax’ to eradicate poverty seems merely a political statement.

The fiscal deficit must be curtailed by lowering government expenditure. The tax base should be broadened to generate revenue, and incremental efforts are required to make the taxation system equitable. Without doing this, there is hardly any chance of improvement.

Dr Muhammad Abdul Kamal
Mardan

Published in Dawn, July 10th, 2022