KARACHI - The Overseas Investors Chamber of Commerce and Industry termed Federal Budget 2015-16 unfavourable for capital growth, short on tax broadening measures and incentives.
Karachi Chamber of Commerce and Industries claimed, the budget has brought additional burden of indirect taxes and further squeeze on the compliant tax payers particularly the trade and industry which is based in Karachi and contributes 65pc of total tax revenue. The budget totally lacks any measures to support the SME’s which contribute 37pc to the GDP and employs nearly 1/3rd of Pakistan’s adult population.
OICCI has opined that the 2015-16 budget announced on June 5, 2015, has ambitious targets and incentives for certain sectors of the economy, looking for generating increased growth.
Though OICCI fully appreciates that it is difficult to present a “please all” budget, policy changes to address investor’s issues, broaden the tax base and wide ranging incentives required to attract large scale FDI and boost employment in the country, were expected to have been amongst the top priorities of the budget 2015-16.
“The planned GDP growth target of 5.5pc is dependent on achieving growth of 6.4pc in manufacturing sector, 5.7pc in services and 3.9pc in agriculture, which seems to be the right ambition but is predicated on a number of assumptions, including increased level of investment in these areas,” commented Atif Bajwa, OICCI President.
Atif Bajwa welcomed the proposed PSDP target of Rs700 billion, “provided it is invested fully in value adding infrastructure projects, which are direly needed for the growth of the economy.” He further said that “incentives for housing, agriculture sector, transmission lines, cold storage and Halal meat projects, as well as KPK specific incentives are to be applauded. However, incentives for KPK should have been extended to the whole country”.
The incentive for exporters is quite timely and should lead to increase in exports especially of value added textiles. Similarly incentives to the farming and housing sectors are positive for growth. However, OICCI is somewhat dismayed that the budget did not incorporate incentives it had recommended under section 65 of the Income Tax Ordinance, critical for attracting large FDI and creating employment in the country. Similarly the Budget proposals lack measures for improving “Ease of Doing Business” concerns pointed out in the World Bank survey.
Overall, there is no substantial change in the ratio of direct and indirect taxes. A paradigm shift in this ratio was required to address the issues in income disparities and to reduce the burden of indirect taxes on the common man.
The KCCI reaction over budget said on the positive side, FBR has been deprived of powers to issue exemptions under various provisions and these powers have been transferred to the parliament. This to some extent will plug the leakages and reduce the level of inherent corruption associated with such powers.
Other appreciable measures taken in the budget by the Finance Ministry are to improve macro-economic indicators and achieving stability in fundamentals.
The repercussions of this measure may be negative for economy because major transactions of commodities and consumer goods could be shifted to cash and hundi system.
In most transactions of bulk commodities and other consumable goods, margin of profit is very thin, ranging from 0.5pc to 1.0pc hence it is not possible for the registered persons to pay 0.6pc WHT on banking transactions and instruments which are used not just for sales but various other type of transactions.
The KCCI therefore suggests that stakeholders should be consulted before implementation of 0.6pc of this new tax on banking transactions and instruments, in order to clarify various queries and implications arising out of the new taxation measure.
Introduction of Section 165B in the Income Tax Ordinance is in sharp contrast with the economic vision of the present government.
This is undoubtedly a damaging measure for revenue collection and also for the local producers of oil seeds who are not able to compete with imported edible oil. The measures should therefore be withdrawn.
Despite a massive exercise undertaken for reforms of the tax system through the Tax Reforms Commission formed last year and major contributions made by chambers, trade bodies, professionals and association, the recommendations have been set aside and ignored for inexplicable reasons in the current Budget 2015-16.