KARACHI:
In direct tax contributions, Pakistan’s top-listed companies collectively added Rs1.22 trillion in the calendar year 2024 (CY24)a 2.2% year-on-year (YoY) increaseaccounting for 23.6% of the country’s total direct tax collection. Auto assemblers emerged as the frontrunners, registering a staggering 62% surge in tax contributions, followed by fertilisers (19%), investment banks (15%), commercial banks (12%), textiles (10%), and cement (9%).
Amid these trends, the government revised its tax collection target for FY25 downward to Rs12.35 trillion (from Rs12.97 trillion) following International Monetary Fund (IMF) negotiations. While total tax revenues soared 27% YoY to Rs10.47 trillion in CY24, direct tax collection alone jumped 33% to Rs5.16 trillion.
However, not all sectors thrived. Refineries, chemicals, Oil Marketing Companies (OMCs), and Exploration and Production (E&P) firms faced tax contribution declines, reflecting sector-specific challenges. With KSE-100 companies delivering a significant share of national revenue, Pakistan’s capital market remains a vital force in the country’s fiscal landscape.
“The numbers are in, and the tax game is strong,” wrote Arif Habib Limited (AHL) analyst Muhammad Iqbal Jawaid in a research report. The government has now recalibrated its tax collection target for FY25 to Rs12.35 trillion, down from Rs12.97 trillion, after negotiations with the IMF. Under this revised target, the direct tax collection aim for FY25 adjusts to Rs5.25 trillion, from Rs5.51 trillion.
For context, fiscal year 2004’s direct tax revenue stood at Rs4.53 trillion. On a calendar-year basis, total tax collection in CY24 reached Rs10.47 trillion, marking a stellar 27% YoY increase. Direct tax collection alone surged 33% YoY to Rs5.16 trillion. During the first half of fiscal year 2025 (1HFY25), direct tax collection stood at Rs2.78 trillion, reflecting a strong 29% YoY growth.
KSE-100 companies played a vital role, contributing Rs687 billion in the first half of fiscal year 2025, accounting for 24.71% of total direct tax collection and growing by 10% YoY. However, not all sectors experienced growth, as some witnessed a decline in tax contributions. Refineries saw the steepest drop at 47%, followed by chemicals at 30%, OMCs at 27%, and E&P firms at 18%. Despite these downturns, KSE-100 companies continued to play a critical role in tax revenue generation, reinforcing the capital market’s importance in the broader economic framework.
Calendar year 2024 was a challenging year for banks, with a series of tax policy changes significantly impacting the sector. Initially, banks were required to maintain a 50% advances-to-deposits ratio (ADR) to avoid penal taxes ranging from 10% to 16% on investment income. However, a late-year policy revision increased the corporate tax rate for banks from 49% to 54%, incorporating a 10% super tax. As a result, the sector’s total tax contributions grew by 12% YoY.
In the E&P sector, tax contributions rose 35% YoY in 1HFY25. However, this increase was primarily due to the absence of a key tax benefitthe reversal of depletion allowance taxationwhich had been available in 1HFY24 but was not present in the latest period, amplifying the tax charge.
The fertiliser sector saw a strong boost in tax contributions, growing 19% YoY in CY24, driven by a surge in profitability. Urea and DAP prices increased by 39% and 9% YoY, respectively, leading to higher pre-tax earnings and, consequently, higher tax payments. Similarly, the cement sector benefited from lower interest rates in the first half of fiscal year 2025, which allowed manufacturers to generate higher taxable income, resulting in a solid 34% YoY increase in tax charges.
On the other hand, the OMC sector faced declining tax contributions, slipping by 10% in 1HFY25. This drop was primarily attributed to a decline in the retail prices of motor spirit (MS) and high-speed diesel (HSD), which squeezed revenues and, in turn, reduced tax obligations for the sector.
Despite some sectoral weaknesses, the strong tax contributions from KSE-100 companies reinforce their critical role in Pakistan’s tax revenue framework. With evolving government policies and macroeconomic shifts, sectoral tax contributions remain an important area to watch in the coming months.
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