FBR withholds billions of rupees of foreign investors

OICCI says govt reluctant to resolve the issue despite promises.

ISLAMABAD: Tax authorities have withheld Rs22 billion worth of refund claims of foreign investors, prompting experts to question actual revenue collection and discouraging investors at a time when foreign direct investment stands at a very low level.

Inordinate delay in settling outstanding tax refunds remained the most serious issue for members of the Overseas Investors Chamber of Commerce and Industry (OICCI), said a senior official of the organisation of 196 foreign companies.

He said the government was reluctant to resolve the issue despite making promises, which was now annoying the foreign investors.

The outstanding refund claims of roughly Rs22 billion were just 2% of the taxes paid by the OICCI members, said OICCI Secretary General Abul Aleem. The disclosure came at a time when the All Pakistan Textile Manufacturers Association (Aptma) is already struggling to get back Rs114 billion from the revenue board.



The Federal Board of Revenue (FBR) has been accused of inflating tax collections by blocking refund payments to the taxpayers. It is struggling to meet budgetary targets and is facing shortfalls despite levy of additional taxes from July, which is estimated to yield Rs231 billion.

In its two budgets, the PML-N government has imposed Rs438 billion worth of additional taxes.

According to the recent Business Confidence Index of the OICCI, the confidence of foreign investors in the government has significantly gone down, falling from 31% to just 16%. One of the reasons for the earlier optimism was high expectations about resolution of outstanding issues and improvement in governance. However, these issues remain unaddressed after almost one and a half years.

The findings suggest that more than one-third of the respondents were expecting a decline in business activities due to energy crisis, inflation, political instability and poor government facilities. For foreign investors, the biggest impediment was energy shortage followed by inflation. Political instability came third, not at first as claimed by the government.

The investors are also uncomfortable with the government’s approach towards protection of Intellectual Property Rights (IPR). The Intellectual Property Organisation of Pakistan (IPOP) Act 2012 has not been implemented to date, said OICCI President Asad Jafar.

He said the government had still not nominated the IPOP chairman, the policy board and intellectual property rights tribunals to adjudicate IPR violations, which are essential features of the IPOP.

According to the OICCI, IPR violations are widespread, resulting in significant financial and social losses to the government and the people. Estimates of revenue losses suffered due to IPR infringements by affected companies stand at around Rs700 billion with the national exchequer losing roughly Rs190 billion in lost taxes annually, negatively impacting the tax-to-GDP ratio by nearly 1%.

“IPR protection, comprising trademarks, copyrights and patents, is critical for attracting foreign direct investment besides encouraging innovation in society and containing rapid brain drain,” said Saad Amanullah Khan, who chairs the OICCI’s IPR sub-committee.

Leading pharmaceutical and healthcare multinationals, for instance, spend between 15% and 20% of their revenue on research and development to introduce new products.

Published in The Express Tribune, November 27^th, 2014.

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