Finance Minister Miftah Ismail on Friday announced a new fixed tax scheme on shops outside of the tax net to reduce the budget deficit and elaborated on the "super tax" on 13 large industries announced by the prime minister that rattled the stock market.

Addressing a National Assembly session convened to wind up the budget debate, Ismail said the country was no longer on the way to default as it was on the path to progress. He had presented the budget for the fiscal year 2022-23 with an outlay of Rs 9.5 trillion on June 10.

As debate on the budget commenced in the NA today, Ismail said most of the recommendations made by lawmakers in the Senate and NA during preceding sittings had been incorporated into the budget.

Taxes

During his address, he referred to the taxes announced by Prime Minister Shehbaz Sharif earlier in the day, Ismail told the House that no indirect taxes had been imposed and neither had any tax been imposed on consumption.

"We have taxed the rich. Much of the revenue will be collected through that so that we don't have to ask for money from others and are able to reduce our budget deficit," he said.

Then, on a lighter note, he sought credit for imposing taxes on companies owned by Prime Minister Shehbaz Sharif's son.

"And my companies will also pay Rs200m more in taxes than before and so if we are asking others to pay more taxes, we, too, are contributing to this [cause]," the finance minister said.

He said the government had committed to the IMF that the primary deficit of Rs1,600bn recorded this year would not only be brought down but there would be a surplus of Rs153bn.

To achieve this, as well as self-reliance, an additional tax of 1pc would be imposed on individuals and entities whose annual income exceeded Rs150m on account of poverty alleviation. Similarly, he added, those with an annual income of over Rs200m would be subject to an additional tax of 2pc, those earning more than Rs250m to 3pc and those having an annual income of more than Rs300m would be taxed 4pc of their income.

"This is a one-time tax for the fiscal year 2022 (on income earned in that year)," he added. Moreover, the minister said, the government had identified 13 sectors that had earned significant profits this year.

"And we have decided that companies that have an income of more than Rs300m, will be subject to a super tax of 10pc for a year," he announced.

The minister said companies working in cement, steel, sugar, oil and gas, fertiliser, LNG terminals, textile, banking, automobile assembling, cigarettes, beverages, chemicals and airline sectors would have to pay this tax.

Entities in the rest of the sectors, he said, would have to pay this one-time additional tax amounting to 4pc of their income.

Moving on to details of other taxes, he said there were around nine million retail shops in Pakistan and the government wanted to bring 2.5 to 3 million of these shops into the tax net.

For this purpose, he said, a new scheme had been introduced under which the income tax and sales tax that these shops had to pay had been "fixed with their electricity bills". He added that under this initiative, small shops would have to pay a fixed tax of Rs3,000 monthly and big retailers Rs10,000.

"After that, they will not be questioned on anything else," the minister added.

Moreover, he said retailers who were dealing in gold and had shops of 300 square feet or less would have to pay a fixed income and sales tax of Rs40,000. And for bigger shops, the sales tax had been reduced from 17pc to 3pc, he added.

Ismail said the withholding tax on gold sold by individuals to goldsmiths had been reduced from 4pc to 1pc.

He said that a similar scheme of fixed tax would be announced for realtors, builders and car dealers.

"This tax is on their income and not expenses, and this is why it will not increase inflation but increase our revenue," Ismail said.

He added that the government had withdrawn the condition of withholding tax on companies operating in the IT sector and had sales of less than 80m. He added that tax on venture capital funds invested in the IT sector had also been removed.

About oil marketing companies, Ismail said these entities had to pay a minimum tax of 0.75pc, which had been reduced to 0.5pc.

Moreover, he said, 5pc commission was cut on outgoing indenters at the time of receipt. "This has now been reduced to 1pc."

Overseas Pakistan who had a NICOP would be considered included in the list of active taxpayers so that they did not have to pay any additional taxes when buying a property, Ismail said, adding that a provision of 50pc reduction in capital gains tax for those who had been allotted plots while in services was initially removed from the budget but now it had been restored.

Families of martyrs and war-wounded individuals would be exempted from tax on income from plots, Ismail said and added that sales tax on skin and hides and surgical instruments had also been removed.

The minister also spoke about relief measures taken by PM Shehbaz, including 'sasta petrol, sasta diesel' scheme and a programme for providing wheat flour, sugar and ghee at utility stores.

Ismail also told the house that the tax target, which was initially set at Rs7.004tr had been increased to RS7.47tr. At the same time, he added, the target of non-tax revenue that was set at Rs2tr had been revised down to Rs1.94tr.

He announced that the government would give Rs4.37tr to the provinces.

"After all these expenses, the federal government's deficit would stand at RS4.55tr and total deficit at Rs3.78," Ismail said.

The minister recalled that when erstwhile Fata was merged with Khyber Pakhtunkhwa, the tribal areas had been given an exemption from tax "of every kind" until 2023.

He said the government intended to introduce a bill for exempting the residents of these areas from paying income tax.

However, he added, companies and industries operating in these areas would be brought into the tax net.

'Farmer-friendly budget'

He announced that the sales tax on cotton cakes (khal) had been removed and termed the budget "farmer-friendly".

"I don't think a more farmer-friendly budget has been presented in the past 10 to 20 years," he said, adding that this reflected the values of the incumbent coalition government.

The minister said as a result of this "farmer-friendly" budget the country would become self-reliant in the production of edible oil, wheat and other commodities. "These will be long-term benefits," he added.

Ismail said funds for farmers in the budget were not to be considered as subsidies but an investment. "We believe that if we will invest in farmers, they will give us the best returns."

'A bad fiscal year'

The minister accused the PTI government of bringing the country to the verge of default and said "we have saved the country from defaulting".

"I want to give this good news to the nation today that the country [...] it is no longer on the way to default but on the path to progress," he said.

The minister said he believed that the current fiscal year would be considered a bad one in Pakistan's history as "we moved away from many of the targets and registered a significant budget deficit".

He said the "federal government has posted a deficit of 8.95per cent of the old GDP (gross domestic product)", adding that this showed the wide gap between the country's expenditure and resources. "And then we have to take funds from others," Ismail said, adding that it was for this very reason that he had to go on multiple foreign trips right after becoming the finance minister in April.

"And then when we talk about freedom, independence and self-reliance, what kind of independence is this that we take loans worth RS20,000 billion in three to four years?"

Blaming former prime minister and PTI chief Imran Khan for taking such big loans within the short span of his tenure, Ismail said in so doing, "we don't move towards independence but slavery".

And then, Ismail said while referring to Imran, "you should not lecture people that we are moving towards [true] independence".

He also criticised the Imran-led PTI government over fuel and energy subsidies that it had introduced in February.

The subsidies, he said, were worth Rs120bn and thanked the PML-N partners in the coalition set up for accepting that the government could not bear this expense at a difficult time like this.

"It was a tough decision to end the subsidies," he said and again thanked the coalition partners for supporting the decision. "They all believed that it would affect the political capital but all of them agreed that Pakistan was the first priority."

'Resumption of IMF programme necessary to save country from default'

Ismail estimated that the current account deficit in the ongoing fiscal year would have reached around $17bn, adding this the meagre reserves of approximately $10 million could not sustain this deficit.

And this was why it was necessary that the International Monetary Fund's (IMF) loan programme of $6bn be resumed so that the country could be saved from default, Ismail explained.

Sharing details of the government's talks with the IMF in recent days, he said the money lender had given feedback that Pakistan had "made important progress in the fiscal 23 numbers".

Ismail concluded his speech by thanking the PM, his team and others, including "international institutions whose help Pakistan will strengthen".