Super tax won’t dent corporate sector profitability: expert

ISLAMABAD: Experts have made startling disclosures about corporate sector tax payments and argued that effective tax rates range from 1.51pc to 2.93pc from the tax year 2015 to 2021, compared to corporate tax rates of 29 to 33pc.

A tax expert made an interesting analysis to demonstrate that the corporate sector is contributing peanuts and there is no justification for raising a hue and cry over increased taxation through a 10pc super tax imposed on 13 major sectors.

The actual tax data demonstrates why an increase in corporate tax rates is not really that big of a deal for corporations working in Pakistan due to legal means of tax avoidance employed by them. The analysis has been made on the basis of tax returns filed by corporations roughly nearing 44,000 on average every year.

It shows that the turnover reported by the corporate sector stood at Rs13 trillion in the tax year 2015 and it went up to Rs16.6 trillion in the tax year 2018. The total turnover of corporate firms climbed to Rs20.1 trillion in the tax year 2021 against Rs21 trillion in the tax year 2020.

The taxable income reported by the firms stood at Rs887 billion in the tax year 2015, Rs1.01 trillion in the tax year 2016, Rs1.13 trillion in 2017, Rs1.16 trillion in 2018, Rs1.2 trillion in 2019, Rs1.46 trillion in 2020, and Rs1.7 trillion in the tax year 2021.

The tax expert argued that there was an interesting point that if the tax rates were applied as such to the taxable income which is the current hue and cry over that of 55 percent in the post-super tax scenario, there should have been a collection of taxes to the tune of Rs292 billion in the tax year 2015, Rs324 billion in 2016, Rs351 billion in 2017, Rs350 billion in 2018, Rs371 billion in 2019, Rs423 billion in 2020 and Rs 507 billion in the tax year 2021.

Now here is the real catch as the corporate firms actually paid at the effective tax rate Rs26 billion in the tax year 2015, Rs26 billion in 2016, Rs20 billion in 2017, Rs18 billion in 2018, Rs17 billion in 2019, Rs22 billion in 2020 and Rs37 billion in 2021.

It shows that the corporate sector's effective tax rate comes to a maximum of 2.9pc. However, the companies claimed refunds of Rs153 billion in 2015, Rs164 billion in 2016, Rs186 billion in 2017, Rs216 billion in 2018, Rs214 billion in 2019, Rs 216billion in 2020, and Rs155 billion in 2021.

The total reported turnover by the companies is 20.1 trillion. The taxable income declared is 1.7tr, so the overall taxable income or profit is only 4pc of the turnover, which shows allowable deductions and exemptions as well as misreporting. The knowledge of how much tax companies can avoid under a legal cover is exactly why there is no uproar usually except just enough for show and tell – superficial at every level. And here is another interesting fact: Because there is no tax avoidance, no deductions allowed against the super tax, that’s why there is so much hue and cry especially by the business community. The super tax would mean a straight tax deduction on their “ability to pay tax” and thus it pinches a lot.

Another interesting point to note is the profits of the top 100 companies on the stock market jumped by 47pc in 2021, hitting an an all-time high of Rs 940bn. The financial sector accounts for 1/3 of the total profits, followed by oil and fertiliser sectors. Interestingly, financial sector profits are driven by higher interest rates and government borrowing, so actually they make their profits from the government only. Bank interest margins in Pakistan are among the highest in the world.