Pakistan among highest corporate tax regimes

Flood surcharge takes effective tax rate to 40.25%.

KARACHI:

Pakistan now ranks third among the highest corporate tax regimes of the world, after the recent imposition of flood surcharge, according to JS Global Capital Limited.

The Federal Board of Revenue has issued procedures for the imposition of 15 per cent flood surcharge after days of speculation. This additional tax will be charged on the existing 35 per cent tax liability, cumulating in an effective tax rate of 40.25 per cent on an annualised basis. The new measure will be effective for the period March 15 to June 30, resulting in corporate earners paying an average 36.5 per cent tax rate for fiscal 2011.

Japan tops the list of corporate tax regimes with a 39.5 per cent tax rate, followed by the US with 39.2 per cent and France with 34.4 per cent.

JS Global predicts erosion of profits on an average by two per cent in fiscal 2011 as a result of the tax surcharge. Furthermore, if the flood surcharge is carried forward to fiscal 2012, there will be a major hit on the corporate profitability growth, as earnings growth is likely to reduce to eight per cent from 12 per cent.

Published in The Express Tribune, March 25^th, 2011.