LAHORE: The Overseas Investors Chamber of Commerce and Industry (OICCI) has urged the government to align the corporate tax rate in Pakistan to the average effective tax rate applicable in Asian countries.
“The effective corporate income tax rate should be aligned to the average tax rate of countries in Asia, which stands at around 22% by eliminating labour levies paid on net profits,” stated the OICCI in its budget proposals for fiscal year 2019-20.
It pointed out that in addition to direct corporate taxes, the companies also paid other levies including the Workers Profit Participation Fund (WPPF) at 5% and the Workers Welfare Fund (WWF) at 2%. Since both of these levies are related to profit, the effective tax rate rises significantly.
Apart from these, the Sindh Development and Maintenance of Infrastructure tax stood at 1.2% of the import value and stamp duty on purchase orders and contracts was levied at the rate of up to 0.3% of the purchase value.
These duties, coupled with several other local levies, increased the overall tax burden to about 40% of profit, which was significant and resulted in a hike in the cost of doing business, the OICCI said.
According to the OICCI, its members are the largest foreign investors in Pakistan and in the past six years, they have invested over $10 billion in the country.
In the budget proposals, the OICCI suggested that tax rates on the banking sector should be aligned with other sectors and a relief in super tax should also be granted.
Moreover, it requested a reduction in sales tax rates for different jurisdictions within the country to 13%. It emphasised that the jurisdictions must be clarified based on the origination or destination of services.
“The general rate of the minimum tax regime should be reduced to a maximum of 0.5%, and 0.2% for oil marketing companies/ refineries/ LNG terminal operators and large chemical companies with high turnover and low margins,” it recommended. “Alternate corporate tax under Section 113C should be abolished.”
It called for simplifying the withholding tax regime by reducing the categories and rates of withholding tax.
There should be a maximum five rates of withholding tax and differentiation should be made on the basis of tax filer and non-filer only, it said.
Demanding incentives to attract investment, the OICCI said the government should introduce measures like enhancing tax credit under Section 65B from the existing 10% to 25% of investment.
It called for extending the date to 2023 for tax credit under Sections 65B, 65D and 65E in order to provide the industry a reasonable time frame to plan its investment and long-term projects.
“Industrial undertakings should be allowed to import raw material in the first year of production without payment of advance tax under Section 148,” the OICCI recommended. “For subsequent years, they should be given exemption from the advance tax on import of raw material, as per actual requirement.”
Tax credit for employment generation under Section 64B, currently restricted to manufacturers, should be extended to the services sector as well, which contributed about half of the country’s GDP, it said.
Tax credit under Section 65A, previously allowed at the rate of 3% to manufacturing companies making 90% of their sales to tax-registered persons, should be restored, the OICCI suggested.
Published in The Express Tribune, June 1st, 2019.