The Central Board of Revenue announced its decision the other day to implement the proposal presented by the Finance Minister in his budget speech of 2003-2004, to allow a non-resident or foreign investor the facility to obtain advance ruling from the CBR on issues relating to tax incidence in respect of projected investment.
The delay of over six months on the part of the CBR to implement this proposal undoubtedly reflects its reluctance or indifference to the pace of investment.
According to CBR's announcement, a high-level committee has been constituted which would be headed by the CBR Chairman and would include CBR Member Direct Taxes and Additional Secretaries of Law, Justice and Human Rights Division as members.
The committee would scrutinise the application presented by a non-resident person or company on a printed form, which has been prepared specifically for this purpose.
The applicant's queries would be duly examined and answered by the committee in consultation with the Income Tax Commissioner of the relevant region/circle, within a period of 90 days. If necessary, the CBR would also consult income tax lawyers and other experts before finalising the ruling on specific issues raised in the application.
The ruling would be valid for these issues and to this extent, the Commissioner of Income Tax of the relevant circle would be obliged to adhere to it in assessments pertaining to the non-resident investor in subsequent months/years.
It has also been pointed out that if the statements and facts provided by the applicant in his original application subsequently turn out to be wrong and based on fraud, the ruling given earlier by the CBR would be withdrawn.
This facility to a non-resident or foreign investor is undoubtedly a welcome approach to the task of facilitating foreign investment in the country which continues to be hesitant for one reason or the other, including apprehensions with regard to tax liabilities and other procedural hurdles both at central and provincial levels.
The proposed step, it is expected, would dispel most of the doubts among the intending foreign investors relating to the rate of return on their investments, and other equally important questions are likely to be answered to the satisfaction of the investors concerned.
It may, however, be noted here that there appears to be little reason to restrict such a facility to only non-resident/foreign investors.
Indeed, the same facility should be extended to Pakistani investors as well who would also like to ensure that problems which are usually crop up subsequent to the implementation of investment proposals by local investors, are clearly resolved in the form of an advance ruling.
Why should local investors be deprived of this facility? In fact a pick-up in local investment is essential to precede any foreign investment flows. A steady tempo of local investment activity alone serves as a reliable indicator of revival of the country's economy and a confident outlook of all stakeholders.
This may effectively pave the way for foreign investors to seek joint-venture arrangements with local investors in profitable projects. But local investors seeking partnership with foreign entrepreneurs would have to equip themselves fully with the knowledge and information in respect of taxation and other problems before they can convince their prospective partners to join hands with them.
In this context, the local investors should also be allowed the facility to obtain advance rulings from the taxation departments in respect of several questions that usually haunt the investors when they decide to invest risk capital.
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