Foreign investors find budget in conflict with ease of doing business

KARACHI: Foreign investors have termed the budget for next fiscal year of 2020/21 as contrary to the government’s policy of ease of doing business, saying the measures couldn’t allay concerns of businesses and warrant revisit.

Overseas Investors Chamber of Commerce and Industry (OICCI) said the important concern of all business entities regarding the minimum tax regime (MTR) has not been addressed in the budget despite clear documentary evidence that the MTR is discriminatory for organisations with large turnovers but limited profit. This was against the proposal of OICCI that wants general MTR rate to be reduced from the existing 1.5 percent to 0.5 percent and for some specific sectors to 0.2 percent.

OICCI, in separate letters to Adviser on Finance Hafeez Shaikh and the Federal Board of Revenue, said the budget introduced a limit of sale to the unregistered buyer to Rs10 million/month, “which is harsh and unwarranted”.

“Barring registered suppliers to sell their goods is against the principle of equity and natural justice, especially when all the required information has been submitted by the seller to the tax authorities,” it said.

The reduction in rate of income tax to two percent on import of raw materials mentioned in part-ii of the 12th schedule would improve the cash flow position of companies. However, certain core raw materials used by manufacturers are still falling under the category of 5.5 percent income tax because of non-inclusion in part-ii of the 12th schedule. The government was asked to prescribe general rate of 2 percent for all imports by manufacturing companies for own consumption.

The Finance Bill 2020 proposed payment of 10 percent of the tax demand created by tax officers before filing an appeal at the tribunal. Currently, the law allows an appeal to be filed with the appellate tribunal without payment of demand created by the tax officers.

“The amendment will create hardship and cash flow problems for the taxpayer, as in case of exorbitant tax demands 10 percent thereof could be a very significant amount and may impede the exercise of right to appeal by the taxpayer, which is a principle of natural justice and fundamental right,” OICCI said. “This would also lead to unnecessary litigation since the appellant will approach the courts by bypassing tribunals.”

OICCI recalled the Finance Act 2018 restricted the frequency of conducting audits to once in a three-year period. The latest bill now seeks to omit the condition of conducting the audit once in a three-year period.

“If passed, this will unnecessarily burden taxpayers, while handing over sweeping powers to the assessing officers of Inland Revenue to conduct audits covering one or multiple tax years with no reprieve for the taxpayer available under the law, in absence of any prescribed limitation,” it said. “The consequence of this change will likely erode the taxpayer’s confidence in the revenue machinery and the probable unnecessary wastage of time and effort by the revenue authorities.”

OICCI further said the budget proposed filing of withholding statements on quarterly basis, instead of six monthly.

“Increasing frequency is in conflict with the government’s policy of ease of doing business,” it said. “These filings are not only tedious and time consuming but also increase the cost of doing business.”

Engineering services were also excluded from the benefit of reduced rate of withholding tax of 3 percent, and rather 8 percent for companies and 10 for other than companies are levied.

“Omission of engineering services from the reduced rate will result in very high incidence of tax especially for the corporate sector that is involved in providing engineering services to the energy, oil and gas and construction sectors,” OICCI said. It also sought exemption from 8 percent tax for liquefied natural gas terminal operators.