Foreign investors urge govt to address anomalies in 2023-24 Budget

Foreign investors have expressed their concerns to the government regarding certain flaws in the 2023-24 budget. They are urging the government to address these issues before the budget is passed by parliament, in order to prevent further burdens on tax-compliant businesses.

In a letter addressed to FBR Chairman Asim Ahmed, the representative body of multinational corporations operating in Pakistan has criticized the retroactive increase in the super tax rate from four percent to ten percent, deeming it "unfair and inequitable." The letter states that this increase effectively raises the corporate tax rate from 29 percent to 39 percent indefinitely, as there is no specified end date. The representative body demands the complete abolition of the super tax, considering it was initially introduced in 2022 as a temporary measure.

The Overseas Investors Chamber of Commerce and Industry (OICCI) highlights its concerns over the proposed additional tax on income, which is subjected to a capped rate of 50 percent. This tax is intended for extraordinary gains resulting from economic factors determined by the federal government over the previous five years. The OICCI finds this proposal "ambiguous and unclear," as the term "unexpected income, profits, and gains" lacks a clear definition. The retrospective implementation for the past five tax years, without allowing for losses, is perceived as unjust and obstructive to businesses. The OICCI warns the FBR chairman of the potential for numerous legal disputes if the additional tax is approved by parliament.

Regarding the withholding tax rates on the sale of goods and services, which have been increased by one percentage point in all categories, the OICCI recommends a complete overhaul of the entire withholding tax system. The representative body suggests simplifying the withholding tax rate structure and making all withholding tax rates adjustable. Additionally, it calls for a reduction in the rate for taxpayers who comply with tax regulations.

The OICCI acknowledges that some of the proposed tax measures will hinder efforts to broaden the tax base. For instance, it suggests reintroducing the requirement of providing CNIC (Computerized National Identity Card) for retail transactions above a certain threshold. Furthermore, it advocates for making the point-of-sale system mandatory for sales tax, integrating it with traders' income tax returns.

On the contrary, the OICCI opposes the proposed exclusion of certain retailers, such as furniture retailers with shops measuring 2,000 sq ft or more, and other retailers with shops measuring 1,000 sq ft or more, from the definition of Tier-1 retailer. This exclusion goes against the concept of expanding the tax base.

Similarly, the representative body of multinational corporations objects to the proposed immunity on foreign remittances outlined in the budget. The current provision allows the commissioner to investigate the sources of any unexplained investment and assets. In case of unsatisfactory explanations, the amount in question is added to the taxpayer's income and taxed accordingly. 

However, remittances received from abroad through permissible channels are exempt from such investigation. Previously, there was no cap on such remittances until 2017-18, but it was then introduced at Rs10 million per year and subsequently reduced to Rs5 million in subsequent years. The latest finance bill proposes increasing the limit to the equivalent of $100,000 per year. The OICCI argues that this immunity is susceptible to misuse and, therefore, should be eliminated.

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