KARACHI: High tax rates coupled and spiraling costs have compelled major listed corporations in Pakistan to reduce headcount in the last couple of years while Islamabad kept hopping from one International Monetary Fund (IMF) bailout to another.
Engro Corp, a major conglomerate in Pakistan with a market cap of over $580 million, has cut jobs across its trading, logistics, and pesticides businesses as well as some of its functional departments, while Amreli Steels said it was temporarily shutting down operations at its Karachi’s SITE rolling mill.
Engro Corp did not respond to a request for comment, but multiple sources indicated that the company severed ties with over a 100 employees across multiple business lines.
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Similarly, Amreli Steels reduced its production capacity by 30%, but an official – not authorised to speak to the media on the matter – indicated that over 300 staff members were let go across its divisions.
Several posts on LinkedIn also conveyed that several layoffs occurred even before the company announced a loss of Rs6.1 billion amid a drop in sales and high expenses during the year that ended June 30, 2024.
In July, Aruj Industries Limited, a Pakistani fabric manufacturer and exporter, announced that it will temporarily halt production activities, a few days after another Karachi-based textile unit — Naz Textiles (Private) Ltd — said it was shutting down its doors.
Last week, Indus Motor Company also conveyed it was shutting its plant for five days citing low inventory and a shortage of components. Its CEO, however, maintained there have been no layoffs.
These announcements – some of them made publicly with the PSX – highlight the issues facing Pakistan’s economy that announced its GDP grew by 3.07% in the April-June quarter of 2023-24.
However, the growth has come largely on the back of agriculture as industrial activity contracted 3.59% during the three-month period, a statement by the National Accounts Committee showed. This was the sector’s third contraction on a quarterly basis during the fiscal year.
During a consultative meeting on the Federal Board of Revenue’s (FBR) planned transformation plan last week, chairman Rashid Mahmood Langrial admitted that high taxation was discouraging enterprises from staying in Pakistan and elevated rates were pushing the country’s skilled individuals to leave the country.
Pakistan’s budget for fiscal year 2024-25 has also been criticised for raising tax rates on formal sectors of the economy, including the easy-to-target salaried individuals, and several protests have taken place to highlight their concerns.
In a press conference on Sunday, Finance Minister Muhammad Aurangzeb acknowledged the high tax rates, but fell short of divulging concrete measures that would be taken.
The government’s plan to tax traders has faced stiff resistance, and tax and duty exemptions for former Federally Administered Tribal Areas (FATA) and Provincially Administered Tribal Areas (PATA) were also extended.
Despite high rates, the FBR is also likely to face a revenue shortfall of over Rs100 billion during the first quarter (July-September) 2024-25, stoking fears that a ‘mini-budget’ may be on the cards.
Analysts say with Pakistan enrolled in another bailout, progress on tax collection, power sector reforms, and privatisation is going to be keenly followed.
Copyright Business Recorder, 2024