Covid-19 Tax Assignment

TAXATION
ASSIGNMENT
COVID-19 IMPACT ON GDP AND TAX 2019-2020
SUBMITTED TO: Ms. SEHRISH aamar

SUBMITTED BY: MAHEEN AMIN
CLASS: BBA 4
SEMESTER: 8
ROLL NO:61651024
LAHORE COLLEGE FOR WOMEN UNIVERSITY, LAHORE

COVID-19 effect on GDP and tax of 2019-2020
A small viral outbreak in Wuhan city of China has now engulfed the whole planet. All those who
had any false hope and misconceived
notions of containing this are now in
shock. The world has come to a
standstill.
Pakistan was introduced to the virus
through travellers coming in from
countries like Iran initially, and then
there have been reports of migrant
workers and personnel coming to
Pakistan from the Middle East and Europe. Pakistan as of now has over 8 thousand cases and
under one hundred deaths which are increasing daily.
On the other hand, lockdowns tend to suffocate the economy in a number of ways. The economic
fall-out is able to cripple the economy and it threatens the livelihood of the poorest segments of
the society. It’s a split decision and a delicate balance of controlling the virus while not
destroying the economy in the process. It would be pertinent to thrash the facets of the negative
impact on the economy from the COVID 19.
The lingering pandemic COVID-19 is expected to have far reaching negative impact for
Pakistan’s economy as the number of people living below the poverty line might get doubled
going up to 125 million from existing figure of 50 to 60 million. The lingering pandemic
COVID-19 is expected to have far reaching negative impact for Pakistan’s economy as the
number of people living below the poverty line might get doubled going up to 125 million from
existing figure of 50 to 60 million.

EFFECT ON GDP
A downturn in Pakistan’s GDP growth was anticipated even before the epidemic reached the
country. The State Bank had already revised downwards the GDP growth rate to 3% from an
earlier estimate of 3.5% for the 2020 fiscal year. The Asian Development Bank also lowered its
projected growth rate to 2.6% from an estimated 2.9% while the World Bank has revised it
downward to 1.1%. Official assessments estimate an initial loss of PKR 2.5 trillion (around $15
billion)
It has further forecasted an economic loss of up to $5 billion, while official authorities expect
anywhere between 12.3 to 18.5 million layoffs.
The fiscal deficit is expected to narrow to 8.0% of GDP in FY2020 as the government continues
to prioritize consolidation. In the first half of FY2020, the deficit fell as revenue collection
rebounded from the equivalent of 6.1% of GDP a year earlier to 7.3%. On the expenditure side,
spending increased from 8.7% of GDP in the first half of FY2019 to 9.6% on higher interest
payments and public development programs to protect public investments and support business
activity, particularly activity connected with construction.
The current account deficit is expected to continue narrowing to the equivalent of 2.8% of GDP
in FY2020 with a reduction in the trade deficit resulting from currency depreciation, the
imposition of regulatory duties to contain import demand, and continued recovery in workers’
remittances following declines in FY2016–FY2018. In the first half of FY2020, the current
account deficit narrowed sharply from 5.8% of GDP a year earlier to 1.5%. Modest growth in the
key exports textiles, rice, and leather was supported by loans under a central bank export finance
scheme and long-term financing facility for exporters. Now this was complemented by a notable
reduction in imports restrained by higher import duties. Weaker demand under COVID-19 could
adversely affect exports, but on balance exports should strengthen due to policy stability,
improvement in ease of doing business, and lagged effects of currency depreciation. Thanks
primarily to the lower oil price the current account deficit is projected to narrow further to equal
2.4% of GDP in FY2021.
To finance the fiscal deficit, the government restructured its short-term borrowing from the
central bank into long-term securities in a bid to increase the average maturity of domestic debt
and reduce its interest rate. Improving the primary budget balance as planned will reduce public
debt ratios, moving the economy closer to debt sustainability as GDP growth recovers somewhat
in FY2021 and further in subsequent years.
EFFECT ON TAX 2019-2020
Economic activities are crippled. The virus has killed off the stock market gains. The Federal
Commerce Secretary commerce said that exports orders had got cancelled and due to this export
loss can be in the range of $2 billion to $4 billion. The FBR is already facing a massive revenue
shortfall. The estimated collection of revenue till June 2020 is just Rs 4.4 trillion as compared to
the FBR’s annual target of 5.555 trillion. The Asian Development Bank reported that Pakistan
economy may face losses of $5 billion or may even more than that.
A fall in import duties caused by import contraction was compensated by the reinstatement of
levies on petroleum products and telecommunication services, the elimination of exemptions for
export-oriented industries, and higher profit transfers from the central bank and the Pakistan
Telecommunication Authority. On the expenditure side, spending increased from 8.7% of GDP
in the first half of FY2019 to 9.6% on higher interest payments and public development
programs to protect public investments and support business activity, particularly activity
connected with construction. Health care and other social expenditure is expected to be
significantly higher as the government addresses COVID-19.
IMPORT EXPORT
A fall in import duties caused by import contraction was compensated by the reinstatement of
levies on petroleum products and telecommunication services, the elimination of exemptions for
export-oriented industries, and higher profit transfers from the central bank and the Pakistan
Telecommunication Authority.
OIL
After raising the policy rate to 13.25% at the beginning of FY2020, the central bank reduced it in
2 steps to 11.00% in March 2020 following the decline in global oil prices and sluggish demand
under COVID-19. Growth in private sector credit has slowed considerably. Inflation is forecast
to decelerate to 8.3% in FY2020. The decline in the oil price may adversely affect government
revenues due to reduced petroleum tax receipts.
Food
The government plans to temporarily abolish all taxes on food items and has announced a
significant reduction in oil prices. Payment of utility bills has been deferred for three months for
households with bills falling below a certain threshold. A sum of PKR 50 billion ($298.94
million) has been earmarked for government-run utility stores to ensure the constant availability
of food and other necessities. PKR 280 billion ($1.68 billion) has been allocated to ensure wheat
farmers do not face cash flows and to smooth wheat procurement.
BUSINESS
Setting the right foundation to kick-start the economy is imperative for the government. The
economic stimulus package contains a whole range of fiscal measures (tax breaks, financial
support via utilities, fuel and transport subsidies, concessions and tax refunds) to protect
exporters and businesspersons. The government has also announced a separate package worth
PKR 100 billion ($600.42 million) just for SMEs, which form close to 90% of all enterprises in
Pakistan and generate 40% of non-agriculture employment.
The State Bank of Pakistan (SBP) has announced a Temporary Economic Refinance Facility to
fuel new investment. This will offer subsidised loans to the manufacturing sector and a
Refinance Facility to allow banks to get loans at zero mark-up, which they can offer to hospitals
at 3% for five years. The SBP has also reduced the interest rate to 11%, still much higher than
other countries that have cut down, but 150 basis points lower than before.

Covid-19 Tax Assignment

Uploaded by

Copyright:

Available Formats

Covid-19 Tax Assignment

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Covid-19 Tax Assignment

Uploaded by

Copyright:

Available Formats

TAXATION

SUBMITTED TO: Ms. SEHRISH aamar

LAHORE COLLEGE FOR WOMEN UNIVERSITY, LAHORE

had any false hope and misconceived

notions of containing this are now in

shock. The world has come to a

Pakistan was introduced to the virus

through travellers coming in from

countries like Iran initially, and then

there have been reports of migrant

workers and personnel coming to

under one hundred deaths which are increasing daily.

impact on the economy from the COVID 19.

existing figure of 50 to 60 million.

anywhere between 12.3 to 18.5 million layoffs.

activity, particularly activity connected with construction.

2.4% of GDP in FY2021.

in FY2021 and further in subsequent years.

EFFECT ON TAX 2019-2020

significantly higher as the government addresses COVID-19.

revenues due to reduced petroleum tax receipts.

farmers do not face cash flows and to smooth wheat procurement.

Pakistan and generate 40% of non-agriculture employment.

You might also like