Taxation: ABC calls for transparent and equitable system

Says distribution of company reserves as dividends will hit growth

KARACHI: In order to spur investment, the government needs to implement a transparent and equitable taxation structure, and ensure predictability and transparency, said American Business Council (ABC) President Arshad Husain.

“We remain cognizant of the fact that with discount rate sitting at a 42-year low of 7%, the government is looking for ways to spur growth, but it has not extended any benefits under Section 65 of the Income Tax Ordinance,” he added.

Husain was of the view that imposing one-off taxes such as super tax could potentially create cash management issues for corporations as well as effectively increase the tax burden on existing taxpayers.

Moreover, if listed companies, with reserves in excess of 100% of their paid-up capital, fail to distribute dividends within six months after the end of their income year, they will be taxed at 10% of the entire amount of undistributed reserves.

“This will result in double taxation as these reserves arise out of income that has already been taxed.”

The distribution of reserves in the form of dividends will severely impact growth as companies will not have the funds available to invest in expansion, commented Husain.

“The 1% reduction in corporate tax rate is in line with plans to bring the rate down to 30% by FY18. With corporate tax in Pakistan currently at 32% (35% for banks), it remains high compared to the rest of the world.”

The cost of non-compliance is set to increase in the wake of measures announced in the budget but much more needs to be done to broaden the tax net and increase the tax-to-GDP ratio, he said. “The government needs to take stern action against non-filers as token penalties will not sufficiently deter big tax evaders,” remarked the ABC president.

The council also expressed concern over the fact that the suggestion to simplify the taxation structure has not been considered.

ABC is one of the largest investor groups in Pakistan with 68 members – most of which represent the Fortune 500 companies.

They operate in various sectors such as healthcare, financial services, information technology, chemicals and fertilisers, energy, FMCG, food and beverages, oil and others. Its members have cumulative revenues of $3.73 billion.

Published in The Express Tribune, June 16^th, 2015.

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