ABC urges govt to rethink tax policy

Multinationals warn 25% advertising disallowance will hurt investment, stifle growth

ISLAMABAD:

The American Business Council has urged the government to reconsider the 25% Sales Promotion, Advertising, and Publicity (SAP) Expense Disallowance Policy, warning that it will significantly increase marketing costs, particularly for multinationals. The government’s disallowance of 25% of SAP expenses creates a substantial financial burden, especially for multinationals that rely heavily on advertising to sell fast-moving consumer goods (FMCGs). This policy translates to a higher tax liability for foreign companies already struggling with current macroeconomic conditions and fosters an anti-competitive and discriminatory environment targeting foreign investors.

A delegation from the American Business Council held meetings in Islamabad on Tuesday with Federal Minister for Investments Aleem Khan, Chairperson of the Senate Standing Committee on Finance Saleem Mandviwala, members of the Special Investment Facilitation Council (SIFC), and Secretary of Finance Imdad Ullah Bosal. As the apex American Chamber of Commerce in Pakistan, they expressed their urgent concerns.

Speaking on the issue, Sami Wahid, Managing Director of Mondalez Pakistan and a Member of the American Business Council, said, “If such SAP expenses are disallowed, Multinational Companies (MNCs) will have no option but to reduce advertising and publicity outlays to keep their balance sheets out of the red. This will disadvantage them compared to local competitors. The significant presence of MNCs in advertising has a far-reaching impact on the economy, and such punitive fiscal measures will jeopardise the already fraying advertising and media industry and stifle innovation in media practices.”

The delegation from the American Business Council also included John Letvin, Economics Counsellor at the US Embassy; Aisha Sarwari, Senior Director of Public Affairs at Coca-Cola Pak-Afg; Jamil Mughal, COO of McDonald’s; Khurram Qamar, Director of External Affairs at Philip Morris (Pakistan) Limited; and Basit Pirzada, Head of Public Policy at PepsiCo. They represent about 60 American companies in Pakistan that have invested billions of dollars over the past few decades.

When a global brand expands into a new market, it requires substantial investment in marketing and advertising, typically accounting for almost 25-30% of net revenue in the first three years to establish its presence. Retroactive applications of such policies, after the financial year has closed, will damage the country’s credibility as a favourable investment hub. While Pakistan is looking to reinvent its image as a viable investment destination, this budget proposal will dissuade investors from considering Pakistan in the future.