Foreign investors seek simple, predictable, transparent, consistent tax policies

ISLAMABAD – Foreign investors in Pakistan have recommended the government to remove anomalies, simplifying tax system to encourage investment in the country.

The body of foreign investors in Pakistan, Overseas Investor Chamber of Commerce and Industry (OICCI), has written a letter to the Federal Board of Revenue (FBR). It has highlighted the need for simple, predictable, transparent and consistent tax policies, to facilitate and protect long-term investment plans in Pakistan.

The taxation proposals have called for review of the Minimum Tax Regime (MTR), with the general rate of minimum tax under section 113 of ITO 2001 to be reduced to 0.25%. For businesses dealing in sectors with high turnover and low margins, (Oil marketing/refineries/LNG terminal operators, large chemical companies), this rate should be applicable on gross profits instead of turnover. Further, Alternative Corporate Tax under section 113C should be abolished in the presence of minimum tax under section 113.

The OICCI also demanded that relief from multiple taxation of Intercorporate Dividends (ICD) in Eligible Group Structures shall be reinstated [section 59B]. The relief on intercorporate dividends was inadvertently treated as an exemption and withdrawn via the Income Tax (Second Amendment) Ordinance 2021, even though it is in line with established global practice of protecting intercorporate dividends from multiple taxation. In meetings with top government officials last year as well, the OICCI had shared that the withdrawal of ICD relief has resulted in multiple taxation of same income which will adversely affect the corporatization and competitiveness of local business groups and prove to be counterproductive to the Government’s vision of promoting investment in Pakistan.

According to the letter, the FBR must work towards “simplifying the complicated withholding tax regime and focus on use of technology to substantially facilitate all stakeholders” and abolish undue recurring audit reviews and recovery proceedings. Besides presenting some industry specific proposals, the OICCI urged the government to use information collected by the tax compliant sector of registered/unregistered businesses as a tool for broadening the tax net, instead of penalizing tax compliant sector with no revenue benefit to the government exchequer.

“If duly implemented, the OICCI Taxation Proposals would facilitate business and FDI, promote the ease of doing business and documentation of the economy, thereby, broadening the tax base and enhancing the revenue collection in proportion to the economic potential of the country”, wrote M. Abdul Aleem, Secretary General of OICCI. The letter also pointed out that the OICCI members are fully supporting the government to deal with the current economic pressures and have, therefore, deferred requests for a number of taxation relief measures that would be justified under normal circumstances.

 

Facilitating and protecting long-term investment plans

 

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