AS expected, the business community at large is grumbling over the government’s decision to impose an additional 10 per cent tax, called the super tax, on some industries aimed at collecting additional revenue as mandated by the International Monetary Fund (IMF).

While this is a welcome step towards creating a fairer taxation system, the government’s claim that it has taken this decision to prevent low-income families from further trouble seems misplaced. It is feared that businesses wishing to maximise their profits will pass this burden down the line to the customers, which will cause more inflation. Besides, there is also a possibility that firms will opt for rationalising employment if they are to pay the additional tax out of their profits.

A case in point is that of the fertiliser industry passing on the burden to the end consumers instead of paying from its coffers. As a result, an increase in urea prices will increase the growing cost of crops, which, besides directly hurting the farmers, will significantly raise the prices of end-user agricultural products, leading to increased inflation.

In addition, significant exports, mainly dependent on agriculture, will become less competitive in the international market. The whole thing will have a ripple effect that would hurt the entire economy.

The government will need to ensure that the selected industries pay the super tax out of their pockets instead of putting an additional burden on low-income families already paying a heavy price. Besides, the government should take these critical times as a wake-up call and start structural reforms urgently.

Long-term economic sustainability requires that the tax net be widened by documenting the supposedly massive informal economy in the country, and some long-overdue structural reforms should be introduced in the agri sector.

Asad Aziz
Khushab

Published in Dawn, July 14th, 2022