ISLAMABAD - The foreign investors in Pakistan have recommended the government to withdraw super tax and reduce the sales tax rates at 13 percent in the upcoming budget for the next fiscal year.
"Tax burden on existing taxpayers is increasing, which is one of the major concerns of the foreign investors who made investment in Pakistan," the Overseas Investors Chamber of Commerce and Industry (OICCI) President Bruno Olierhoek said in a press briefing.
He further said that Pakistan's ranking in Ease of doing business has ranked a lowly 147th among 190 economies, which is worrisome.
The OICCI has noted that government had increased its tax collection by imposing taxes on existing taxpayers of the country. It has recommended the government to broaden the tax base of the country by bringing retails and agriculture sector in tax net, as these sectors contribute more to the GDP of the country.
The OICCI has asked the government to withdraw 3-4 percent super tax imposed some three to four years back to help the Internally Displaced Person (IDPs). "The government had assured us that super tax will be imposed only for one year. However, it is continued from last few years," said OICCI's sub committee on taxation chairman Irfan Wahab Khan.
In its proposals the OICCI suggested to reduce corporate tax rate to 25 percent in line with the regional practice where the rate is 22 percent.
Similarly, uniform sales tax rates all over Pakistan initially should reduce at 13 percent as in Sindh and then to 10 percent in line with the average rates in the region. It has also asked to remove conditions like tax on undistributed profits, tax on bonus shares etc. The government should give more incentive on new Foreign Direct Investment (FDI) including to Services sector.
The OICCI has recommended for timely resolution of tax matters among provinces and FBR.
For example Workers Profits Participation Fund issue is lingering for quite some time. It has also asked that minimum tax and alternate tax regime should be abolished. The government should re-vamp Withholding tax regime from current 55 rates to just 5. The foreign investors has suggested that taxation policy incentive for investment should be for a longer term ,like ten years ,so that green field investment with longer time required to develop investment plans are attracted. There should be no regulatory duty on raw materials. Implement Tax Reforms Commission report on priority.
The OICCI has asked the government not to announce the mini-budgets, as it did few months before by increasing duties on luxury items. The government should clear the tax refunds on urgent basis, the OICCI recommended. The OICCI said that their taxation proposals are intended to make Pakistan an investment friendly country at par with many of the successful regional countries.
Talking of FDI, it is no secret that Pakistan is getting less than 1 percent of its reported GDP in new FDI, including for CPEC investment in recent years. This is well below the norm in the region. There is a need for authorities in Pakistan to understand the factors which have boosted FDI, and exports, in some of the regional countries like, for example, Vietnam, Indonesia, Thailand and Malaysia so as to adjust policy action to boost FDI inflow in Pakistan.
The OICCI has recommended certain visible actions to attract large FDI from across the globe to boost manufacturing, employment and exports for Pakistan.
Some of these measures in order of priority are: (a) Urgent need for an institutionalized forum for raising the investors issues at the senior most Federal and Provincial Government level.
The OICCI has volunteered to structure and manage such a forum. (b) Proactively manage negative perception of the country through active communication of the progress achieved in various segment of the economy, and the opportunity available for investors in industry, infrastructure and trade. (c) Federal Government, Sindh and Punjab government to deliver on an action plan to significantly improve on Pakistan's poor ranking on World Bank's Ease of Doing Business. (d) Immediately resolve the growing number of issues relating to Taxation, tax refunds, circular debt etc. (e) Lack of seamless coordination among federal and provincial agencies is critical in the area of taxation and setting standards for food and pharma sectors. (f) Need for "Predictable, transparent and consistent policies" and its intended implementation.
Despite an uncertain business environment due to upcoming national election, one of the OICCI member, a major international FMCG alone announced new investment of $120million. This is indicative of the potential for large FDI in the growing economy of Pakistan, which Pakistan has to-date failed to fully exploit due to various reasons including the weakness in governance and policy implementation.
Overall, OICCI members believe that the economy is undernourished and deserves many innovative and out of box measures, especially in terms of taxation measures proposed by OICCI, to deliver on its potential.