Business bodies call for lower corporate tax

Highest rate in region seen as disincentive for investment.

KARACHI:

The Institute of Chartered Accountants of Pakistan (ICAP) and the American Business Council (ABC) have urged the government to reduce the corporate tax rate to 30 per cent for fiscal year 2011-12.

In its budget proposals for 2011-12, ICAP mentioned that the corporate tax rate in Pakistan was the highest among regional countries, which was a “disincentive for multinational groups to locate their manufacturing base in Pakistan.”

Speaking to The Express Tribune, ABC Vice President Saad Amanullah Khan said, “We believe the corporate tax rate should be in line with regional countries and should be around 30 per cent.”

The government, in 1993, brought the corporate tax rate down from 42 per cent to the present 35 per cent.

ICAP former president and AF Ferguson and Co partner Shabbar Zaidi supported Khan, saying, “In Pakistan, there is double taxation, which pushes corporate tax even higher than 35 per cent. After the levy of one-time flood tax, the corporate tax rate has reached 38.5 per cent,” he added.

On March 15, the government imposed a 15 per cent flood surcharge on income tax till the end of June and also withdrew various exemptions provided to major industrial sectors under the sales tax regime.

The proposals added that the rate of corporate tax in the developed world had been brought down to around 30 per cent, while India, Bangladesh, Malaysia and Thailand had also reduced the rate to 30 per cent. “In Pakistan, income is taxed at a substantially higher rate than the rate applicable on head offices of multinational groups, which is considered a bad omen for tax planning,” read the proposals.

InvestCap Head of Research Khurram Schehzad said the reduction in corporate tax would encourage the corporate sector and increase investment in the country. “Pakistan is among countries where corporate tax is comparatively higher, which discourages investment from the corporate sector,” said Schehzad.

Highlighting ways of increasing revenue, he said, “Instead of taxing already-taxed sectors, the government should bring untaxed ones into the tax net. The system is highly uneven as some sectors are heavily taxed, while some are completely ignored.”

The manufacturing sector generates over 60 per cent of the country’s revenue, with a 20 per cent share in gross domestic product (GDP). On the other hand, the agriculture sector, despite having a share of 25 per cent in GDP, generates only one per cent of revenue, he explained.

“The government should also provide tax incentives to listed companies over non-listed ones. Incentives will bring more companies to the stock market that will have multiple benefits for the government. Moreover, tax incentives to listed companies will not only provide investment avenues but also reduce manipulation in stock markets,” added Schehzad.

Published in The Express Tribune, April 19^th,  2011.