Overseas investors chamber proposes tax reform plan

ISLAMABAD: The Overseas Investors Chamber of Commerce and Industries (OICCI) has submitted an eight-point set of recommendations to the interim finance minister aimed at expanding the tax base. These suggestions include the reintroduction of CNIC requirements for cash transactions exceeding Rs50,000 and the demonetization of Rs5,000 notes.

The OICCI, representing more than 200 multinational corporations, has formally communicated its recommendations in writing to Dr. Shamshad Akhtar, the interim Minister for Finance.

In the correspondence, it emphasised the existence of “quick wins” and highlighted the significant issue of excise duty evasion, which amounts to Rs80 billion within the tobacco industry, along with problems related to duty-not-paid goods and under-invoicing. These practices have a detrimental impact on tax revenues and are particularly prevalent in small areas within the KPK and Azad Kashmir. The OICCI also pointed out that the Track and Trace system, despite much anticipation, has not been effectively implemented, with only two multinational companies (MNCs) holding a 60% market share and contributing 99% of the tobacco tax.

It stressed the availability of substantial data in the system for taxing various sectors of the economy, including trade and service industries such as doctors, lawyers, self-employed professionals, and more, all of which constitute a significant portion of the economy.

It referenced a data-driven analysis of tax potential by former NADRA chairman Dr. Tariq and advocated for the efficient use of AI to identify new sources of revenue, expressing their readiness to support these efforts through their global IT-based companies. The chamber further highlighted the potential to increase the tax-to-GDP ratio to approximately 16% by collecting taxes based on potential rather than current practices.

It called for mandatory implementation of point of sale (POS) systems for income tax purposes for service providers such as doctors, private hospitals, lawyers, artists, fashion designers, property dealers, interior designers, and educational institutions, including private teachers, coaching centers, and salons.

The OICCI suggested that the tax-to-GDP ratio, currently less than 10%, could be increased to 16% by ensuring that all sectors contribute to the national exchequer in proportion to their GDP contributions. This includes agriculture, real estate, wholesale, and retail trade.

The first recommendation urged the Federal Board of Revenue (FBR) to prioritise and execute a strategy for Broadening the Tax Base (BTB), recognising significant revenue opportunities.

It recommended allocating substantial resources (30–40%), including the use of AI technology, for capacity and capability building in the BTB unit, along with setting ambitious revenue targets.

The second recommendation called for the imposition of a tax on wholesale and retail trade, reinstating the CNIC requirement for all cash transactions exceeding $50,000. It proposed integrating the POS system with income tax returns for traders and imposing an adjustable tax (e.g., 10%) on imports by non-corporate entities.

The third recommendation stressed the need to collect taxes on real estate, facilitating data exchange between provincial and federal authorities to ensure collection under Section 7E.

In the fourth recommendation, the OICCI advocated for the inclusion of service providers in the tax net through mandatory registration, making POS systems for income tax purposes mandatory for professionals and institutions such as doctors, private hospitals, lawyers, artists, fashion designers, property dealers, interior designers, educational institutes, including private teachers, coaching centers, and salons.

The fifth recommendation underscored the wealth of available data for FBR and authorities to enhance tax collection, citing sources such as NADRA, the FBR Malomaat Portal databases, data submitted by banks and utility companies, property registrars, and excise and sales tax returns. It also called for the reduction or elimination of amnesty schemes, which discourage honest taxpayers.

The sixth major proposal called for the digitisation of the economy and the discouragement of cash circulation, promoting digital payments through fintech, POS invoices, e-invoices, mobile wallets, etc., and recommended the demonetization of Rs5,000 notes.

In the seventh recommendation, the overseas chamber called for increased public awareness to promote tax culture in the country. It suggested incorporating tax and levy knowledge into the curriculum of higher school education. Finally, the eighth recommendation proposed taxing agricultural income and empowering the federal government to collect income tax on behalf of provincial authorities.