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Tax amendments disincentive to long-term investment: OICCI

Business

June 7, 2017

KARACHI: Foreign investors have expressed concern over surprise amendments in taxation measures introduced through the Finance Bill 2017 and termed them counterproductive for long-term investment in Pakistan.

The Overseas Investors’ Chamber of Commerce and Industry (OICCI) in a letter addressing the chairman of the Federal Board of Revenue (FBR) sent on Tuesday said that the proposed increase for tax filers in the rates of tax on dividend income from 12.5 percent to 15 percent and mutual funds from 10 percent to 12.5 percent and the proposed flat rate of 15 percent of capital gains tax, irrespective of the holding period will be a disincentive to investors in the stock market and savings, in general. “This new proposal is a surprise for investors, as they plan their holding periods based on tax timelines,” the OICCI said.

The chamber said the amendment proposed in section 3 (1A) of the Sales Tax Act, 1990 has created ambiguity and needs clarification that “further tax” will be applicable on local sales of export-oriented items only, which are covered under SRO 1125 (I)/2011.

Despite the fact that sales tax rates in Pakistan are completely out of sync with the average Asian countries sales tax rates of less than 12 percent, (with a range of six percent to 17 percent), there is no proposal in the budget 2017/18 to reduce the sales tax rate of 17 percent, which is even higher by four percent than 13 percent GST on services by Sindh, it added.

The FBR chairman has been informed that the budgetary measures are not appeared to address and simplify the withholding tax regimes.

“Withholding tax regime, both for income and sales tax should be reformed to support local manufacturing base, encourage foreign investment, widen the tax base and increase documentation of business transactions,” the letter read.

The OICCI said the government should broaden the tax base through appropriate legislation to ensure that all income earners, without exception of any sector, including from agriculture activities, should get themselves registered and obtain proper national tax number. The tax authorities should ensure that all NTN holders file annual income tax / wealth returns and wealth reconciliation statements, it added. The proposal from the OICCI and nearly all other business chambers to review and reinstate the group taxation facility, which was abolished in the Finance Act 2016/17, to facilitate formation of large entities with resources to promote diverse investment and employment opportunities in the country has been completely ignored in the budget.

The OICCI said despite the passage of over seven years since the passing of the 18th Amendment and assurances by the federal and provincial authorities concerned, a number of issues relating to synchronisation of the policies, standard tax rates and removal of all anomalies / conflicts between the laws of the different revenue boards, have still not been addressed. The FBR chairman has been informed that foreign investors have invested in Pakistan and not in any particular province and; therefore, they should not be made to suffer pending resolution of inter-governmental issues / conflicts.

The federal WWF and WPPF laws have still not been updated to appropriately account for the provincial enactments and current minimum wage levels. Moreover, deduction of provincial WWF and WPPF as tax deductible allowance / expenditure needs to be given legal cover, it said.