Pakistan levies ‘super tax’ on major industries to cut deficit ahead of expected IMF deal

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ISLAMABAD: Pakistan to impose a one-time additional tax of 10% on large-scale industry for a year to raise more than 400 billion Pakistani rupees ($1.93 billion) before a deal to resume crucial Fund funding international monetary policy, Finance Minister Miftah Ismail said on Friday (June 24).

The announcement comes ahead of what Pakistan hopes will be an agreement to release a further tranche of IMF funds that are needed to avert a balance-of-payments crisis.

“Let me share this good news that this country is no longer heading into default,” the finance minister told parliament in his closing speech on the budget that introduced the new taxes.

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“We made some very tough decisions,” he said.

Ismail called it a super tax, begging large-scale industry to bear it just for a year to help shore up revenue urgently needed to reduce the budget deficit.

He said it will be levied on 13 major sectors, including sugar, steel, cement, oil and gas, fertilizers, cigarettes, chemicals, automobiles, banks, textiles, liquefied natural gas (LNG) terminals and beverages.

Pakistan’s KSE 100 stock index fell 4.8% on Friday after the government announced the tax hike.

Ismail said a revised budget will raise the revenue collection target to 7.4 trillion Pakistani rupees from 7 trillion Pakistani rupees after the imposition of the tax.

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He said a single tax bracket of 10% to 40% will also be introduced on individual incomes of Rs 150 million to Rs 400 million per annum.

The IMF has been pushing Pakistan to increase revenue and cut spending to reduce the deficit in order to be able to secure its next $900 million loan tranche, which has been on hold since the beginning of this year.

“It was necessary to resume the IMF program to save our country from default,” Ismail said, adding that Pakistan will show a positive primary deficit for the 2022-23 financial year.

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The South Asian nation is in desperate need of IMF financing as it has been in the throes of a financial crisis, with foreign reserves held by the central bank falling to $8.2 billion and the Pakistani rupee to record lows against to the US dollar.

Pakistan entered the IMF’s 39-month, $6 billion program in 2019, but less than half the amount has been disbursed so far as Islamabad struggles to keep its targets on track.

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