Pending tax refunds of multinationals swell to Rs64 billion

KARACHI: Outstanding tax refunds of multinationals have piled up to Rs64 billion, impeding corporate business activities in Pakistan with the taxation policy focused only on organised and documented sector, the head of their representative body said.

“It is unfortunate that tax refunds of OICCI’s (Overseas Investors Chamber of Commerce and Industry) members are piling up despite regular follow-ups and currently Rs64 billion are the outstanding tax refunds of our members,” Shazia Syed, president of OICCI said in an interview. “We believe that the tax system needs to be simplified and made business friendly.”

OICCI draws on a diverse membership both in terms of sector and geography with the current 189 members representing 35 different countries and 14 different sectors of trade and industry.

Syed underlined the need to remove delay and procedural hassles in processing of outstanding refunds.

“Pending tax refunds should be cleared within next six months and subsequent tax refunds should be cleared within 45 days,” she said. “Inter-adjustment of Income tax and sales tax refunds should be made part of the law.”

Criticising the government’s reliance on withholding tax regime, Syed said there are more than 150 categories of withholding taxes/rates, while companies have to make more than 150 yearly payments and file returns in respect of income tax, sales tax and social security.

“There should be maximum five rates for all withholding taxes and the differentiation should be based on filer and non-filer only,” she added. “There needs to be more coordination between federal and provincial legislations to synchronise sales tax rates and harmonise policies across all jurisdiction and sectors. The federal WWF (workers welfare fund) and WPPF (workers’ profit participation fund) law should be updated based on the recent provincial enactments and current minimum wage levels.”

OICCI president advocated the creation of regionally competitive effective tax rates, as such all sales tax rates should be reduced to 13 percent, and “jurisdiction be clarified based on origination or destination for services”.

“OICCI has proposed to align effective corporate income tax rate with average tax rate in Asia as well as align tax rates for banking sector with other sectors,” she said. “We believe that digital transformation is essential for our society to prosper as well as for the economy to make quick gains and become a leading contributor to global trade”.

On broadening of tax base, OICCI chief said legislation should be designed to ensure that all income earners pay taxes equitably, including on income from agriculture related activities and all kinds of government and banks’ saving schemes.

Syed further said illicit trade is hurting local businesses and the government should review and revamp the Afghan Transit Trade agreement (ATT), introduce tighter penalties for illicit trade and review custom valuations.

On a question, Syed said OICCI continues to encourage government to improve overall business climate. “However, there is a lot to be done and all the stakeholders should be taken onboard for consensus and smooth implementation.”

OICCI president said the country is a land of opportunities and bound to grow rapidly as Asia grows in attracting investment and trade.

“This is the time to invest in Pakistan and the government should cater for local and regional business opportunities,” she said.

Syed said women represent half of the working age population in Pakistan, but they make only a quarter of the workforce. Pakistan stands at 148 out of 149 countries in the Global Gender Gap index of the World Economic Forum. “Our ranking has been the same for the past seven years.”