Islamabad, Pakistan – Pakistan’s top-listed companies, represented by the KSE-100 index, collectively contributed a substantial Rs1.22 trillion in direct taxes during the calendar year 2024, demonstrating their pivotal role in the nation’s fiscal framework. This figure represents a 2.2% year-on-year increase and accounts for a significant 23.6% of the country’s total direct tax collection for the year.
The latest data reveals a dynamic landscape of sectoral contributions, with auto assemblers leading the charge with an impressive 62% surge in tax payments. Following closely were the fertiliser sector (19%), investment banks (15%), commercial banks (12%), textiles (10%), and cement (9%), all showcasing robust growth in their tax contributions.
This performance comes at a time when the government has revised its tax collection target for the fiscal year 2025 downwards to Rs12.35 trillion, a reduction from the initial target of Rs12.97 trillion, following negotiations with the International Monetary Fund (IMF). Despite this adjustment, the overall tax revenue in CY24 witnessed a remarkable 27% year-on-year increase, reaching Rs10.47 trillion, with direct tax collection alone jumping by an impressive 33% to Rs5.16 trillion.
However, the report highlights a divergence in performance across different sectors. Refineries, chemicals, Oil Marketing Companies (OMCs), and Exploration and Production (E&P) firms experienced declines in their tax contributions, indicating sector-specific headwinds and challenges.
Sectoral Highlights and Challenges:
The first half of the fiscal year 2025 (1HFY25) further underscores these trends. KSE-100 companies contributed Rs687 billion in direct taxes during this period, a 10% year-on-year growth, representing 24.71% of the total direct tax collection.
- Banking Sector: Despite a challenging year marked by tax policy changes, including an increase in the corporate tax rate from 49% to 54%, the banking sector still managed to increase its tax contributions by 12% in CY24.
- E&P Sector: While tax contributions in this sector rose by a significant 35% YoY in 1HFY25, this was largely attributed to the absence of a key tax benefit (reversal of depletion allowance taxation) that was available in the corresponding period last year.
- Fertiliser and Cement Sectors: Both sectors enjoyed strong growth in tax contributions, with fertilisers increasing by 19% in CY24, driven by higher profitability due to price increases. The cement sector saw a 34% YoY increase in tax charges in 1HFY25, benefiting from lower interest rates.
- OMC Sector: This sector faced a 10% decline in tax contributions in 1HFY25, primarily due to a drop in the retail prices of motor spirit (MS) and high-speed diesel (HSD), which impacted revenues.
- Refineries and Chemicals: These sectors experienced the most significant declines in tax contributions in 1HFY25, with refineries seeing a steep 47% drop and chemicals facing a 30% reduction.
Analyst Insights and Future Outlook:
“The numbers are in, and the tax game is strong,” commented Muhammad Iqbal Jawaid, an analyst at Arif Habib Limited (AHL), in a recent research report. This sentiment reflects the overall positive contribution of the listed companies to the national exchequer.
The government’s revised tax collection target for FY25 now aims for Rs12.35 trillion, with a direct tax collection target of Rs5.25 trillion. This adjustment comes after negotiations with the IMF, highlighting the ongoing efforts to balance fiscal needs with economic realities.
Capital Market’s Crucial Role:
The consistent and significant tax contributions from KSE-100 companies underscore the vital role of Pakistan’s capital market in the country’s economic framework. Despite sectoral variations and evolving government policies, these top-listed firms remain a cornerstone of national revenue generation. As macroeconomic shifts continue to shape the business environment, the tax contributions from these sectors will remain a key indicator of Pakistan’s economic health and the effectiveness of its fiscal policies.
