The government may bring drastic changes to its policy that allows foreign investors unrestricted repatriation of wealth, as a parliamentary committee, discussing next year’s budget, has hinted at setting a time limit and placing curbs on foreign firms having majority stake in local companies.
The Senate Standing Committee on Finance, headed by Senator Nasreen Jalil of MQM, in its meeting on Tuesday directed the government to discuss the proposed changes to the existing policy of repatriation of wealth with the State Bank of Pakistan.
The committee members suggested putting a time limit on sending wealth back home by foreign firms and placing a ban on repatriation by those firms that own more than 50% shares in a local concern.
The panel’s recommendations will be discussed in the National Assembly. If the NA adopts the recommendations, it will be binding on the government.
“We should welcome foreign investment, but should not sell ourselves to the foreigners,” said Senator Sughra Imam of PPP.
Senator Talha Mahmood of JUI-F proposed that the government should disallow repatriation of royalty beyond a certain period, as even a firm having 51% stake had been repatriating royalty since 1947. He also called for putting curbs on repatriation of royalty by automobile companies.
Finance Secretary Abdul Wajid Rana endorsed the committee’s recommendations, saying that after discussing the issue with the central bank, the government would respond to the panel this week.
He, however, said the government had already discussed this proposal, but complications emerged as foreign investments were protected by bilateral agreements. So far, Pakistan has signed treaties with 60 nations to avoid double taxation, according to the Federal Board of Revenue (FBR).
In the outgoing fiscal year, investments and savings in the country have plunged to historic lows. Investment has dropped to 12.5% of GDP in the first 10 months of the current fiscal year while foreign investment has dipped by 65%, according to the Economic Survey of Pakistan.
The panel showed its reservations about FBR’s move to determine the value of all types of assets, arguing it would be tantamount to interfering in provincial affairs.
Through Money Bill 2012, the FBR has suggested that its Board in Council – the highest decision-making body of the FBR – will determine rules for valuation of assets, including immovable property.
The finance secretary also opposed the FBR’s move, saying “determination of the value of assets is the exclusive domain of provinces as even parliament cannot give directions.”
The need to determine the value of assets arose after the government proposed 10% and 5% tax on gains made on sales of property in one year or two years respectively. The government has also imposed 2% capital value tax on property in the jurisdiction of Islamabad Capital Territory.
The FBR has reservations that the existing system of valuation of property is flawed, resulting in massive tax evasion.
On recommendation of Senator Talha Mahmood, the committee also sought legal opinion from the law ministry, asking whether the federal government could tax gains made on property. A ministry official said the ministry had already vetted the proposal and parliament could levy tax on gains from immovable property.
Addressing the panel’s concerns over the government’s proposal to levy 1% withholding tax on all sorts of manufacturing, FBR’s Member Inland Revenue Shahid Asad clarified that the move was a substitute to the statutory regulatory order (SRO) 191, which binds the manufacturers and suppliers to get CNIC number of the buyers.
FBR has remained unable to implement the SRO due to fierce opposition from the business community.
Commenting on next year’s budget, Senator Nasreen Jalil said there was expectation that at least from next year, the government would widen the tax base and try to balance the collection from direct and indirect taxes. “But the status quo has been maintained and poor will continue to suffer,” she added.
Published in The Express Tribune, June 6th, 2012.
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