Stricter rules target non-filers to close Pakistan's tax gap

Morning! A silent moment for those who thought summer was over and it will be easy breezes from now on because winter is definitely not coming just yet ☀️.

In this week’s edition:

🧴 From sweet scent to bitter aftertaste

⚖️ Non-tax filers? What’s that?

📊 SVB Report: “AI’s on the up, but software engineers? Not so much”

🔋 EV rules will be up soon

- The Itla Squad 💼

Business

Global 🌎️

The OG baby powder's sweet scent now carries a bitter aftertaste

Even Diddy buying 1,000 bottles of baby oil wasn’t enough to help the company escape its troubles.

Johnson & Johnson is making a third attempt to use bankruptcy to settle claims that its famously popular baby powder (you know, the pink bottle we all grew up with) caused cancer.

Key takeaways:

• J&J tried twice before to settle the lawsuits using bankruptcy, but courts said J&J wasn’t struggling financially enough to use this approach.

• J&J set up a new company, Red River Talc LLC, which filed for bankruptcy to handle the lawsuits. J&J is offering to pay $8.9 billion over 25 years to settle the claims, an increase from their earlier $2 billion offer.

• J&J is using a legal trick called the "Texas two-step." They create a new company to handle the lawsuits, while the main J&J business stays unaffected.

Moving ahead: Around 83% of people suing J&J agree with this plan, and the company says this is one of the biggest settlements in history for cases like this. Victims could get between $75,000 and $150,000, depending on how severe their cases are. However, some lawyers say J&J's offer is too low and it’s unfair that J&J is still making money while using bankruptcy.

TLDR: J&J is making a third attempt at bankruptcy to settle claims that its baby powder caused cancer. The company is offering $8.9 billion over 25 years through a new subsidiary, Red River Talc LLC, with 83% of claimants supporting the plan. Critics argue the settlement is too low, while J&J’s profits remain intact amid the legal mess.

What else is new in news

✶ The US Justice Department has sued Visa, saying the company has unfairly controlled the debit card market for over ten years. They claim Visa forced businesses to use its system and blocked other options, letting it charge higher fees.

Local 🇵🇰

Non-filers? What’s that?

The word ‘non-filers’ will have limited days in the Pakistani-government-dictionary.

The government has decided to eliminate the non-filer category from tax laws and restrict some activities associated with non-compliance. The Federal Board of Revenue (FBR) has revealed that while 94% of middle-income taxpayers file their returns, only 29% of the wealthiest individuals do, prompting the government to tighten its grip on tax compliance.

This decision comes after receiving support from leading industrialists who agree that more revenue can be collected from existing tax filers while punishing those who don’t comply.

Key takeaways:

• The FBR found that last year, Rs423 billion in withholding tax payments went unclaimed, likely from non-filers.

• The richest 1% of Pakistanis contribute significantly to the tax gap, with Rs1.2 trillion of the Rs1.32 trillion gap attributed to them.

• The government will abolish the non-filer category and restrict 15 types of transactions for non-compliant individuals.

• Non-filers will face limitations on cash withdrawals, with a proposed cap of Rs30 million annually. New restrictions will also affect property purchases, vehicle acquisitions, and investments in securities for those who haven’t filed their returns.

Moving ahead: The reforms aim to reduce the tax burden on compliant sectors while encouraging more individuals to file their taxes. Still, it’ll be fascinating to watch how the rich find ways to sidestep these new rules 🙂.

TLDR: The government is eliminating the non-filer category and restricting activities for non-compliant individuals, as only 29% of the wealthiest Pakistanis file their taxes, contributing to a Rs1.32 trillion tax gap. Key changes include capping cash withdrawals for non-filers at Rs30 million and imposing new limits on property and vehicle purchases.

News Flash

✶The Competition Commission of Pakistan (CCP) has sent notices to 20 brands for potentially misleading marketing practices, particularly regarding vague discounts advertised as "up to a percentage" during sales.

Tech

Global 🌎️

SVB Report: “AI’s on the up, but software engineers? Not so much”

Silicon Valley Bank just released its State of the Markets report for the second half of 2024. It covers recent trends in investments and startup valuations, the challenges founders are facing, and updates on VC fundraising and investments.

Key takeaways:

• H1 2024 saw over $14 billion raised in funds of $1 billion or more, with 35% of these funds focusing on AI. Late-stage tech valuations rebounded quickly, with AI companies valued 68% higher than their non-AI counterparts. The S&P 500 also rose 19% year-over-year.

• There has been a slowdown in Series A fundraising, creating a bottleneck as seed-stage companies struggle to advance. However, median valuations increased by 17% year-over-year.

• Software job postings have plummeted 70% since early 2022, and corporate spending on technology is being scrutinized, although investments in generative AI are still strong.

• While some feared that companies with larger deals would become inefficient, data shows they are more likely to move to the next round, contrary to the popular narrative.

Moving ahead: The report also pointed out that the Federal Reserve might lower interest rates soon, which means it could make borrowing money cheaper and could be good news for VC investments. It's expected that rates could drop below 5% by the end of the year.

TLDR: Silicon Valley Bank’s latest report shows $14B raised in H1 2024, with 35% of the funds focused on AI. Startups are struggling to secure Series A funding. While software job postings have dropped 70%, investments in AI remain strong. Despite concerns about larger deals, data suggests these companies are more likely to advance.

What else is new in news

✶ Physics Wallah, an Indian ed-tech startup, has raised $210 million to expand its business and make acquisitions. This new funding values the company at $2.8 billion, up from $1.1 billion.

Founded in 2020, Physics Wallah provides affordable courses for competitive exams, with the goal to support the 99% of students who can’t afford expensive coaching classes.

Local 🇵🇰 

EV rules will be up soon

The Steering Committee on Electric Vehicles (EV) is set to finalize the National Electric Vehicle (NEV) policy within a month.

The primary goal of this policy is to promote local manufacturing and encourage the adoption of electric vehicles to support a sustainable transport system in Pakistan.

Key takeaways:

• Initial steps include reducing electricity tariffs for EV charging stations and completing 40 charging stations in major cities and along motorways.

• Since 2022, 49 licenses have been granted for two- and three-wheeler EV manufacturers, capable of producing 4 million vehicles annually, with 25 currently operational.

• Currently, only 45,000 two- and three-wheelers (0.16% of total vehicles) and 2,600 four-wheelers (0.06% of total vehicles) are operating in Pakistan.

Moving ahead: The committee will also develop a plan for charging infrastructure, oversee vehicle replacement in federal government fleets, and promote public awareness about the benefits of EVs. The government aims to complete the NEV policy by the end of November.

TLDR: The Steering Committee on Electric Vehicles (EV) plans to finalize the National Electric Vehicle (NEV) policy within a month to boost local manufacturing and promote EV adoption in Pakistan. Initial steps include reducing electricity tariffs for charging stations and completing 40 stations in key areas. As of now, only 45,000 two- and three-wheelers and 2,600 four-wheelers are operational.

Tech tour of news

✶Visa plans to increase the number of businesses accepting digital payments in Pakistan by ten times over the next three years investing in digital payment infrastructure, according to Leila Serhan, the company’s general manager for the region.

This initiative is part of a partnership with 1Link, Pakistan’s largest payment service provider, aimed at streamlining remittances and promoting digital transactions. With a population of 240 million, only 60% of adults in Pakistan have a bank account.

More interesting Itla (اطلاع) we consumed:

👫 You know those moments when you tell your friends, “Sorry, I can’t hang out, I’ve got an important meeting”? This video with Simon Sinek and Trevor Noah will make you rethink all those times.

Simon emphasizes that while we’re busy improving ourselves as professionals, we often overlook the emotional bonds that keep us grounded. They dive deep into why friendships are crucial for our mental health, success, and happiness.

This conversation is a fantastic reminder to keep those relationships front and center in your life.