ABC concerned over lack of initiatives to broaden tax net

Says despite some favourable aspects, additional levies nullify all benefits

KARACHI: American multinationals operating in Pakistan have expressed concern over the lack of initiatives to broaden the tax net in the federal budget 2017-18 and to simplify tax administration for existing taxpayers.

Reacting to the federal budget, the American Business Council (ABC) welcomed the government’s decision on exempting sales tax until June 2019 on exports of IT services from Islamabad and other federal territories and extending the scope of penalties for curbing illicit trade in cigarettes in Pakistan.

In order to spur investment in plant and machinery, the investors were looking for some tax relief measures such as the reduction in turnover tax from 1% to 0.5%. However, this was enhanced to 1.25% while there was no reduction in the duty on basic raw material, according to a press release issued on Thursday.

“The implementation of predictable, consistent and transparent economic policies is a prerequisite for attracting investment, creating jobs and growing the economy,” said ABC President Sami Ahmed.

“Taxation policy measures should focus on the overall impact on the business environment, therefore, these should help improve the cost of doing business without burdening existing taxpayers,” he added.

The ABC investor group was of the view that although certain aspects of the budget like reducing the corporate tax rate were favourable for promoting investment, additional levies actually nullified all the benefits of the reduced rate.

A classic example is the super tax. In the budget 2015-16, the federal government levied a 4% one-time super tax on banking companies and 3% on individual and other companies having an annual income of Rs500 million. This was done to collect funds for the rehabilitation of temporary displaced persons, however, it has continued since then.

Some of the suggestions in the proposed Finance Bill 2017-18 like 10% tax on companies, which do not distribute 40% of profits as dividend, will severely impact their growth as companies will have no funds to invest in expansion projects.

The abolition of tax credit that was primarily introduced to encourage documentation of the economy would have the opposite effect.

The increase in minimum tax from 1% to 1.25% is also perceived as unfavourable for companies as this may substantially increase the effective tax rate beyond the corporate rate of 30% for large manufacturing companies.

This places Pakistan in the highest corporate tax bracket of over 30% compared to other countries like Sri Lanka 15%, Bangladesh 25% and Vietnam 22%.

With gross revenues of over $4 billion, ABC is one of the largest investor groups in Pakistan with 67 members, most of whom represent Fortune 500 companies.

They operate in various sectors like healthcare, financial services, information technology, chemical and fertilisers, energy, fast-moving consumer goods, food and beverages, oil and others.

Published in The Express Tribune, June 16^th, 2017.

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