Super-tax could be extended for another year

The Super-Tax enacted in 2015 to meet the expenditures of the Armed forces during the Operation Zarb-e-Azb is poised to be extended for another year, according to FBR officials. Back then, it was supposed to generate funds for the rehabilitation of the population displaced by the operation and was implemented for only a year in the budget of the fiscal year 2014-15. The incumbent authorities have no plans to withdraw the Super-Tax for the upcoming financial year 2017-18.

According to proposals floated by the FBR, it has been recommended that the government should raise the rate of super tax to 5pc for banking companies. If these suggested measures get enacted, the effective income tax rate for banks will see a rise to 40pc in comparison to 35pc currently. For companies generating earnings over Rs 500m are already subjected to a 33pc income tax rate inclusive of the Super Tax.  The imposition of the Super Tax in 2015 saw major opposition from major stakeholders which included banks and also rich politicians.

Under the head of this Super-tax for the fiscal year of 2014-15, the government imposed a special 4pc one-time levy on profits of banks and 3pc on all other companies and individuals with annual earnings of Rs500m or more.

Out of the Rs100b assigned by the government during the current financial year, 2016-17 in the name of temporarily displaced persons (TDP’s), around Rs55b were provided to the military to meet its operational expenses.

The government in the preceding year’s budget had also extended the scope of Super Tax by broadening the definition of income. It disallowed adjusting business losses and cost of depreciation of plants and machinery against the company’s current year’s income. Considerable numbers of industrial units such as textile and fertiliser plants claim hundreds of millions of rupees in depreciation every year, which the government is treating as their income.

The government plans of increasing the extent and scope of the Super-Tax would enable them to generate an additional Rs10b due to an increase in levy, if it gets enacted. This will boost the collection from Rs 30b to Rs35b.  

The government was also requested to scrap the Super-Tax in the Federal Budget 2017-18 by the Overseas Investors Chamber of Commerce and Industry (OICCI), a consortium of 195 multinational companies which have operations in Pakistan.