Our tax Babus keep beating the same dead horse again and again. Here’s how it affects the stock market

It seems that Financial Year 2025 is going to be a mad scramble for revenues for the Federal Board of Revenue (FBR). With the International Monetary Fund (IMF) demanding a higher collection target, the FBR will look down the avenues of options that are present to it. 

Considering the brain power at the FBR, it can be expected that some of the same sources of income will be squeezed further. Up till now, some of the measures that are expected are aimed at salaried class, general sales tax, dividend and capital gains. Lo and behold! The same sources which are milked every year round.

In other words, more of the same that has been carried out in the past. It seems that the tax babus sitting in their air conditioned offices are looking to hand out the same treatment that they have done in the days gone by. Why are these sources always singled out? The ease that they provide. Under the Income Tax Ordinance 2001, the FBR has designated withholding agents. The task of these agents is to collect tax on their behalf and then deposit it with the relevant banks. A swish of the wand and suddenly tax collections go up with little to no effort on the part of the tax walas.

Companies are mandated to cut salary at source which means the salaried class does not even get to see their whole salary. As these rates are changed at a whim, the company has no other choice but to apply the tax that is applicable to it. The plight of the salaried class has long been ignored as they are made target number 1 when any tax reform (read increase) is required.

Recently the Prime Minister did instruct the Finance Ministry to request the IMF to drop the proposed tax hike on salaried individuals. This would be a huge sigh of relief for everyone. However, the Finance Ministry has started considering these orders as more suggestions so don’t rest too easy.

The second easiest option is to increase the general sales tax that is charged. From a toffee to a life saving drug to a luxury car, all of these things are seen as being equal in terms of the tax regime and sales tax is collected from each of these items. Ismail Industries, for example, manufactures a pack of Cocomo. Regardless of the fact that it has 3 or 4 inside a packet, the company tags on the sales tax when it sells it to the wholesaler. As the packet of Cocomo goes from the wholesaler to a child or a childish adult, the sales tax has flowed upwards from the customer to the wholesaler that they had earlier paid.

The simplest job in this whole process is of the FBR. The FBR sees the total amount of Cocomo sold by Ismail Industries and then slaps the sales tax on that. This means that for every packet of Cocomo sold, the company is liable to pay the tax and then collect it from the other participants in the supply chain.

Why are these sources of revenues used? Well it’s the fact that they are automated, onerous to someone else and tax officers have to do the least bit possible in order to show an increase in their tax collection. They have to do so in order to justify buying plazas which cost exorbitant amounts of money on Main Boulevard Gulberg with the government footing the bill.

The last two sources that have been mentioned are strictly applicable to investors on the stock exchange. The attraction of these two sources is again the same. There are participants in the market who have to deduct and collect this tax and then show it as a part of tax collected by the government.