KARACHI: Pakistan Federal Budget FY23 Preview with tax revenue target of Rs7.25trn for FY23, analysts expect new taxation measures across various sectors in the upcoming budget.

Supertax: FBR is mulling to increase the incidence of tax on companies earnings windfall profits by imposing targeted tax in FY23 for a specific time period. FBR is also likely to increase super tax on banking sector which is currently at 4%. A 4% additional super tax on banking sector is likely to impact profitability of banks by around 7%.

To recall, government had imposed super tax of 4% on banks and 3% on companies earning profits of Rs500mn and above in 2015. Topline Securities believe that the reimposition of 3% super tax on non banking companies and an additional super tax of 4% on bank could fetch an additional Rs50-100bn for the government.

Tax on Salaries: IMF has demanded Pakistan to increase the number of slabs and taxation rates on salaried class. There is a demand to generate additional Rs80bn from the salaried class.

Miftah Ismail, Pakistan’s Finance Minister, has shown his resentment over imposition of increased taxation on salaried class however any measures on individuals earnings high salaries (Rs0.2mn & above per month) can not be ruled out. Pakistan collected income tax of Rs152bn against salaries in FY21.

Concessionary tax rates may be withdrawn: Taxation on untaxed sectors and sectors getting concessions may be subject to increased taxation. As per study of UNDP on Pakistan National Human Development Report on inequality, total benefits and privileges enjoyed by different vested interests in Pakistan amounts to Rs2.66trn in FY18 (7% of GDP). As per the report, concessions for different segments include; Corporate Sector Rs724bn, Feudal Class Rs370bn, High Net worth individuals Rs368bn, Large Traders Rs348bn, State Owned Enterprise Rs345bn, Military Establishment Rs257bn, and Exporters Rs248bn.

These needs to be gradually reduced as IMF has also demanded government to reduce such concessions.

Subsidy allocations to reduce: Government had budgeted subsidies of Rs682bn (1% of GDP) for FY22 and thus far government has already disbursed subsidies of Rs575bn for FY23. Out of these budgeted subsidies for FY22, Rs596bn or 87% worth of subsidies were for power sector whereas Rs30bn of subsidies were allocated for Naya Pakistan Housing Scheme.

The government has also spent over Rs160bn worth of subsidies on Petroleum Prices in 4QFY22, which was initially not budgeted.

Allocation and spending on subsidies specially on power sector and petroleum products will be reduced in FY23.

Tax loss/exemptions: According to industry estimates, national exchequer has suffered losses of Rs50bn from the exemptions given to FATA/PATA alongside distortions created in the markets. The government gave tax exemption to FATA/PATA region industries after its merger to Khyber Pakhtunkhwa (KP).

IPSOS, a global leader in market research, in its recent study stated that tax evasion in five sectors including illicit trade in Tea, Tobacco, Tyres & Lubricants, Medicines, and real estate amounts to Rs310bn annually.

This is another area where government should focus to improve tax collection.