Hefty corporate tax drags down regional competitiveness

ICAP suggests cut to regional levels in budget proposals.

KARACHI: The Institute of Chartered Accountants of Pakistan (ICAP) has asked the Federal Board of Revenue (FBR) to reduce corporate tax rate from existing 35% to 25%-28% to give Pakistani companies a competitive edge in the region and encourage corporatisation.

“The applicable corporate tax rate of 35% appears higher the rates of 25-28% applicable in the region,” according to a paper that outlined ICAP’s proposals for the federal budget 2012-13.

The paper also urged the FBR to announce tax credits for salaried people, particularly for educational and utility expenses. “Salaried individuals are taxed on their gross salary income without any deduction. It is generally noted that salaries are not increased in line with inflation, hence, salaried persons are more affected due to the reduction in purchasing power.”

ICAP has also proposed that “statutory restrictions” should be placed on the announcement of amnesty schemes and presumptive taxation, which involves the use of indirect means to ascertain tax liability that differs from the usual rules based on the taxpayer’s accounts, saying they have proven counter-productive to the documentation of the economy.

The paper noted that many people currently out of the tax net maintained bank accounts and were engaged in sale and purchase of properties and vehicles, making air travels, staying in hotels and paying utility bills, school fees and club membership fees, for which they were required to produce their computerised national identity card (CNIC). “It is proposed that appropriate amendments be made in the relevant laws, including taxation laws, to make it mandatory to provide national tax number (NTN)/CNIC for specified transactions, and such transactions be reported to the FBR to be matched with NTN database to identify tax evaders.”

Noting that agricultural income, and not trading, is exempt from income tax, the paper stated that the trading of agricultural produce was generally carried on by commission agents through various ‘mandis,’ which were managed through market committees that granted and renewed licences of these agents.

To bring this segment into the tax net, ICAP has proposed that market commission agents registered with market committees that deal in agricultural produce should be subject to tax. It added that a fixed tax payable at the time of the renewal of their licences could be introduced as the first step.

The paper also called the present 16% rate of General Sales Tax a “bottleneck” in the way of people coming into the tax net, adding it contributed to inflation.

ICAP also called for increasing tax collections without increasing the tax rates by means of “harmonisation of existing rates” and increasing the tax base.

Published in The Express Tribune, April 3^rd, 2012.