Govt urged to give tax reliefs to raise capital formation

KARACHI: Businessmen on Tuesday asked the government to give tax reliefs to the local industries to ramp up capital formation and subsequently increase investment in industrialisation.

Chief Executive Officer Ehsan Malik at the Pakistan Business Council (PBC), in a letter to the Prime Minister Nawaz Sharif, urged him to arrest the “premature de-industrialisation of Pakistan’s industry”.

“The government needs to revisit the changes made in the past few years which have effectively dismantled the policy framework for capital formation,” Malik said.  PBC comprises around 60 renowned business names, including 24 multinational companies, from manufacturing and services sectors.

The government was urged to introduce long-term tax advantage for listing on the stock exchanges, withdraw super-tax and discontinue tax on bonus shares and retained reserves. 

The informal sector should also be given a level-playing field and that will generate tax revenues. Incorporation and governance can be encouraged by equalising the rate of tax on small and medium enterprises earning up to Rs20 million with one applicable on individuals and association of person.

The PBC said the government needs to support the development of local industries to sustain the benefits accruing from improving security situation, change in global perception about Pakistan and massive infrastructure investments under the China-Pakistan Economic Corridor projects.

Presenting a recipe of transforming Pakistan into a middle income country by 2025, he said there is a need to create jobs for two million new entrants. Government should emphasise on value-added exports as opposed to exports of commodities and unfinished goods. 

“Pakistan is probably the only country in the world which exports its primary commodities to its competitors and hopes to compete with them in the value-added segment,” said Malik.  While tax base should be broadened, increasing taxes on existing taxpayers is squeezing capital formation and inhibiting investment. 

The Pakistan Business Council sought incentives for the information and communication technology sector much similar to manufacturing sector and reduction in taxes to increase broadband penetration to 80 percent from the present 20 percent within the next three years. 

The government was also urged to rationalise corporate tax rate and bring it at par with the region. Pakistan has the highest 32 percent corporate tax rate as compared to Singapore (17 percent), Sri Lanka (15 percent), Bangladesh (25 percent) and Vietnam (22 percent). 

The government was urged to unify taxes and simplify returns and collection system. Pakistan stands at 155 of 190 countries in the World Bank/PricewaterhouseCoopers paying taxes ranking.  

“With the right policies, there is no reason why domestic industry in a country of 200 million cannot gain scale and become competitive, both locally to substitute imports and globally to generate exports,” added PBC chief.