KARACHI: Terming the budget 2015-16 an ambitious plan on paper, the Overseas Investors Chamber of Commerce and Industry (OICCI) stated that the incentives awarded to certain sectors of the economy could assist in increasing growth.
However, it added, the budget does not contain sufficient incentives to boost Foreign Direct Investment (FDI) and large investments in the country. It includes only marginal tax-broadening measures and some proposals are likely to impede capital formation essential to drive growth.
Though the chamber admitted that it is difficult to present a ‘please all’ budget, policy changes to address investors’ issues, broadening the tax base and wide-ranging incentives to attract FDI and boost employment were expected to have been among the top priorities of the budget.
“The planned GDP growth target of 5.5 % is dependent on achieving growth of 6.4% in manufacturing sector, 5.7 % in services and 3.9 % in agriculture, which seems to be appropriate but it is predicated on a number of assumptions, including increased level of investment in these areas,” OICCI President Atif Bajwa said.
The OICCI chief stated that considering targets for the past seven fiscal years have not been met, it would have given greater confidence to all stakeholders if specific measures for broadening the tax base were included. “This would have created greater confidence in the achievement of targets and fairness in sharing the burden of revenues,” he added.
“Incentives for housing, agriculture sector, transmission lines, cold storage and halal meat projects, as well as Khyber-Pakhtunkhwa (K-P) incentives, are to be applauded. However, incentives for K-P should have been extended to the whole country.”
Bajwa added that in terms of taxation measures, continuing with the policy announced in 2013 and reducing corporate tax rate by 1% was a positive step. “However, this reduction is more than negated by the imposition of a ‘super tax’ of 4% on banking companies and 3% on all other taxpayers having income of Rs500 million or above, which will mainly affect OICCI members.”
Tax at the rate of 10% is also proposed on the whole amount of undistributed reserves in excess of 100% of paid up capital of the organisation.
According to Bajwa, this will surely restrict capital formation for new projects and regular BMR investments by companies. “At this point in time, when the country needs to expand the capital base for investment in projects, such a tax will serve as a disincentive,” said Bajwa, adding that the banking sector has also been hit hard through certain other tax adjustment measures announced in the budget.
Meanwhile, OICCI said emphasis is still on withholding taxes as compared to effective enforcement measures. The OICCI has always suggested that enforcement measures should be introduced by increasing capability and accountability at all levels.
The OICCI added that it was somewhat dismayed that the budget did not incorporate incentives it had recommended under section 65 of the Income Tax Ordinance, critical for attracting large FDI and creating employment in the country. Similarly, the budget proposals lack measures for improving “Ease of Doing Business” concerns pointed out in the World Bank survey.
Overall, there is no substantial change in the ratio of direct and indirect taxes. A paradigm shift in this ratio was required to address the issues in income disparities and to reduce the burden of indirect taxes on the common person, added the chamber.
Published in The Express Tribune, June 10th, 2015.
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