KARACHI
Welcoming government’s decision on exemption of sales tax till June, 2019 on the exports of IT services from Islamabad and other Federal territories and the extension of scope of penalties for curbing illicit trade of cigarettes in Pakistan, American investors have expressed concern over lack of initiatives to broaden the tax net and to simplify tax administration for existing taxpayers.
In order to spur investment in plant and machinery the investors were looking for some taxation relief measures such as the reduction of turnover tax from 1 per cent to 0.5 per cent. However, this was enhanced to 1.25 per cent. As well as there was no reduction in the duty of basic raw material.
“The implementation of predictable, consistent and transparent economic policies is a prerequisite for attracting investment, creating jobs and growing the economy. Taxation policy measures should focus on the overall impact to the business environment, therefore improving the cost of doing business without burdening existing taxpayers,” said President American Business Council of Pakistan Sami Ahmed.
The ABC investor group was of the view that although certain aspects of the budget like reducing the corporate tax rate were favorable to promote investment – additional levies actually nullify all the benefits of reduced rate.
The super tax was a classic example, in the budget 2015-16, the federal government levied a 4pc, one-time, super tax on banking companies and 3pc on individuals and other companies having an annual income of Rs500 million. This was done to collect funds for rehabilitation of temporary displaced persons. This has continued ever since.
Some of the suggestions in the proposed finance bill 2017/18 like the 10pc tax on companies which do not distribute 40pc of their profit as dividend will severely impact growth – as companies will not have the funds available to invest in expansion projects.
The abolition of tax credit that was primarily introduced to encourage documentation of the economy; the proposal to withdraw the incentive would have the opposite effect.
The increase in minimum tax from 1pc to 1.25pc is also perceived as unfavorable for companies as this may substantially increase the effective tax rate beyond the corporate rate of 30pc for large manufacturing companies making Pakistan in the highest corporate tax bracket of over 30pc as compared to other countries like Sri Lanka (15pc), Bangladesh (25pc) , Vietnam (22pc).
The American Business Council is one of the largest investor groups in Pakistan with 67 members – most of them represent Fortune 500 companies.
They operate in various sectors i.e. healthcare, financial services, information technology, chemical & fertilizers, energy, FMCG, food & beverage, oil and others. ABC members have cumulative gross revenue of over US$ 4.0 billion. ABC members contribute a sizable amount to the national exchequer every year as direct and indirect taxes – last year they contributed Rs 119 billion.
The ABC members also employ over 68,500 people directly who support 275,000 dependents and indirectly employ nearly one million people with agents, distributors, contractors etc.
