ABC urges govt to reconsider 25pc SAP expense disallowance

LAHORE: The government’s proposal to disallow 25pc sales promotion, advertising and publicity (SAP) expense will dissuade investors from considering Pakistan in the future, fears the American Business Council (ABC).

This was said in an ABC statement issued on Tuesday, which highlighted that the proposal will create a significant marketing cost especially for multinationals that rely on advertising to sell fast moving consumer goods (FMCG).

This, according to the ABC, means a higher tax liability for foreign companies, already struggling with current macroeconomic conditions. It also means an anti-competitive and discriminatory landscape targeting foreign investors.

On Tuesday, a delegation from the American Business Council held meetings on the matter with Federal Minister for Investments Aleem Khan; Chairperson of Senate Standing Committee Finance Saleem Mandviwala; Secretary Finance Imdad Ullah Bosal; and members of the Special Investment Facilitation Council (SIFC). As the apex American chamber of commerce in Pakistan, ABC members shared their urgent concerns.

Speaking about the issue, Managing Director of Mondalez Pakistan and ABC member Sami Wahid said, “In the eventuality that such SAP expenses are disallowed, MNCs will have no option but to reduce outlays made on advertising and publicity to keep their balance sheets out of the red. It will put them at a disadvantage in comparison to local competitors. The significant presence of MNCs in advertising has a far-reaching impact on the economy, and such punitive fiscal measures will not only jeopardize the already fraying advertising and media industry but also stifle innovation in media practices.”

The delegation of the ABC also included Economic Counsellor US Embassy John Letvin, Senior Director Public Affairs Coca-Cola Pak-Afg Aisha Sarwari, McDonalds COO Jamil Mughal, Director External Affairs Philip Morris(Pakistan) Limited Khurram Qamar, and Head of Public Policy PepsiCo Basit Pirzada. They represent about 60 American companies’ membership in

Pakistan that have invested billions of dollars in the past few decades.

The ABC explained that when a global brand expands into a new market, it requires substantial investment in marketing and advertising, typically accounting for almost 25-30 per cent of net revenue in the first three years to establish its presence. Retroactive applications, after the financial year has closed, will damage the country’s credibility as a favourable investment hub.

Pakistan is looking to reinvent its image as a viable investment destination and build upon grounds such as the US and Pakistan Tax Treaty and an investment framework agreement for equal treatment. This budget proposal will dissuade investors, the American Business Council observed.