Calling super tax unfair, OICCI demands its withdrawal

Published: May 17, 2017


ISLAMABAD: As distrust of government’s ability to honour its promises deepens in the business community, the Overseas Investors Chamber of Commerce and Industry (OICCI) has asked economic managers to stop “double-talk” pertaining to super tax.

OICCI, an influential representative body of 193 foreign companies working in Pakistan, on Tuesday asked the government to withdraw the unfair super tax, and if it could not do so, then it should be imposed across the board.

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Investor mistrust has deepened as the latest OICCI survey reveals that investors do not believe in government’s promise to end load-shedding by 2018.

OICCI’s reaction comes at a time when economic managers are planning to extend super tax into the third fiscal year starting July.

The move to extend the tax is contrary to the earlier announcement that the special levy has been imposed only for fiscal year 2014-15 to raise extra funds for temporarily displaced persons by charging up to 3% additional income tax from companies and 4% from banks earning more than Rs500 million annually.

False hope

“Two years ago, Finance Minister Ishaq Dar assured me that the super tax had been imposed only for one year,” said Abdul Aleem, OICCI Secretary General, while talking to media persons. “Multinational companies are very upset over the tax and there should not be double-talk.”

Aleem urged the government to increase the standard 31% corporate income tax to 34% if it did not want to withdraw the super tax, so that everyone could pay at the equal rate.

The secretary general regretted that the government was not giving due weight to the OICCI, whose members contributed almost one-third to the total tax collection and about 18% to the national output.

After including the impact of super tax, the companies were paying 34% income tax, which was contrary to the government’s claim that Pakistan had 31% corporate income tax, he said.

He was of the view that the super tax had affected foreign investors’ trust in the government as they took official pronouncements very seriously.

Government’s retreat in the case of super tax is one of the main factors behind the decline in business confidence in Pakistan, according to a periodic survey carried out by the OICCI last month. Business confidence has declined significantly over the past six months.

Key reasons behind the constant decline in confidence were apprehensions about energy sustainability, security and tax policies, said the secretary general. Just over a year ago in April 2016, the business confidence was at the highest level.

Survey’s revelation

The latest survey has shown that confidence has grown only in the services sector while in two other sectors – manufacturing and retail – it has significantly decreased.

The most important factors behind the decrease in confidence were a notable reduction in capital investment plans over the next six months and highly unstable business situation in the country.

Aleem pointed out that foreign direct investment (FDI) remained very low and was not even 1% of the country’s GDP. Pakistan needs a significantly higher FDI, at least 3% of GDP, to achieve the desired economic growth and create employment opportunities.

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He said the low FDI level was the outcome of negative perception, poor rating in the World Bank’s Ease of Doing Business index, tax system focused on the organised sector only with ad hoc levies like 3-4% super tax, gap between investment incentives and policy implementation, insufficient interaction between policy-makers and investors and delay in settlement of issues like tax refunds and circular debt.

He opposed the proposal of introducing an offshore tax amnesty scheme, saying any such move would discourage honest taxpayers. He also demanded reduction in sales tax from 17% to 13% and restoration of group tax relief which was withdrawn in the previous budget.

Published in The Express Tribune, May 17th, 2017.

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