The federal government is expected to reduce the super tax rate on the manufacturing sector in the upcoming industrial policy. According to reports, the government intends to slash the rate to just five percent over the next four years.

 

Reports suggest that in the fifth year, authorities intend to scrap the super tax entirely, allowing industries to benefit greatly. As per the details, the tax will only be removed if the primary balance remains positive. For reference, the primary balance is the difference between a government's total revenue and its non-interest expenditures.

 

However, it merits a mention that this plan is still subject to the International Monetary Fund’s (IMF) approval. As per reports, the draft of the new industrial policy includes initiatives to assist the manufacturing sector.

 

A key proposal intends to increase the minimum threshold for super tax in the manufacturing sector from just Rs200 million to Rs500 million. Moreover, the policy draft reportedly advises increasing the threshold for levying a 10 percent supertax from Rs500 million to Rs1.5 billion.

 

Reports have outlined how the policy draft will likely result in only larger manufacturers bearing the super tax, allowing smaller manufacturers to avoid bearing its burden. The aforementioned developments are not final as the policy draft still has to be approved by the federal cabinet later this month.

 

According to reports, the policy draft has highlighted measures to revive industrial units and rationalize taxes that the manufacturing sector has to bear. Moreover, authorities intend to introduce a bankruptcy framework to help underperforming businesses restructure more efficiently.

 

Access to credit facilities on easier terms is also expected to be granted to manufacturers to support industrial activities. Reports reveal that the policy draft includes plans to increase investment inflows while also boosting the competitiveness of Pakistan’s manufacturers in global markets.

 

If authorities remain successful in creating an environment that favours manufacturers, Pakistan could witness a sizable uptick in export earnings, which could close the gap in Pakistan’s balance of trade deficit.

 

This could help increase Pakistan’s current account surplus, which stood at $2.1 billion for fiscal year (FY) 2024-25. While the surplus was primarily achieved because of the $38 billion in remittance inflows Pakistan was able to attract, the current account surplus could grow significantly with an uptick in export earnings.