The Federal Board of Revenue (FBR) is taking steps to resolve the taxation-related issues of Japanese investors, particularly delay in payment of refunds, on the basis of recommendations made by Board of Investment (BOI). Sources told Business Recorder here on Monday that the BOI has forwarded the proposals of Japanese business groups in Pakistan. The FBR has received a proposal regarding taxation on special economic zone (SEZ) enterprises and taxation on new investment and reinvestment. Investors have proposed speedy refund of advance tax at import stage and timely issuance of exemption certificate for advance tax as well as withholding tax. The increase in validity of issued exemption certificates is very short. The SEZ enterprise is exempt from all taxes on income, but minimum tax is collected.
About the taxation on new investments & reinvestments, Japanese investors have proposed that the minimum tax is charged against turnover irrespective of profit or loss. This minimum tax needs to be abolished.
The BOI has also requested the FBR for abolishment of tax on undistributed profits, which hinders reinvestments. The BOI has forwarded the proposals to FBR for consideration. The FBR may be directed by the PM Office to consider the same.
In the past, on directions of the Prime Minister's Office, Board of Investment hosted a meeting to address issues faced by Japanese investors in Pakistan. In addition to the major Japanese companies in Pakistan, representatives from the Japanese Consulate in Pakistan as well as Pakistan-Japan Business Forum, Japan External Trade Organization (JETRO) and JICA participated in this past meeting.
The Director General (Foreign Investment & Marketing) informed that BOI, under the administrative control of Prime Minister's Office, acts as focal point of contact for prospective investors, both domestic and foreign, to provide them with all necessary information and assistance in coordinating with other government departments/agencies. The government is very serious in attracting and protecting FDI. He highlighted that after successful implementation of our counterterrorism strategy and improvement in the overall security situation, investors from many countries, including Japan, are taking more interest in investing in Pakistan. Japanese companies have been successfully operating in Pakistan for more than 5 decades. Cognizant of the fact that Japanese firms are contributing to the economy of Pakistan, the BOI decided to come to Japanese companies based in Karachi to appreciate their work and help resolve their issues, if any. He assured Japanese firms that BOI will try to address their issues and where possible send the recommendations to the Prime Minister for policymaking and necessary directions to the concerned authorities.
A Japanese company desires to introduce electric rickshaws in Pakistan in CKD and CBU forms. However, existing import duty tariff is making it difficult to compete in market. Therefore they have requested for elimination of duty tariff on import of electric rickshaw in CKD and CBU form.
It was also proposed that apart from Bridgestone, Dunlop and Yokohama tyres are being marketed in Pakistan by Japanese companies. Tyres cannot be categorized as luxury goods. Such increase in duty has increased the burden on the local consumers.
The BOI supported the use of inexpensive and environmentally friendly technology. However, it was requested by BOI that a detailed proposal along with rationale may be provided by Itochu Corporation to be taken up with the concerned authorities. The BOI supported the proposal of reducing additional duty. Federal Board of Revenue may be directed by the PM Office to consider the proposal.
The BOI has informed FBR that the operating capital of a Japanese company has been blocked with FBR as advance income tax. The company requires exemption certificate under Section 148 and refund from FBR for the years 2015, 2016 and 2017. Several other companies are facing similar issues due to delay in repatriation of funds which include investments, profits, royalties and technical fees.
The BOI had recently arranged a meeting with the timidities providers to facilitate provision of utilities at SEZs including Bin Qasim SEZ. Electricity is already available in the zone. With regards to the provision of gas, the government has already lifted moratorium on provision of RLNG to enterprises parked in SEZs. Efforts are being made for provision of gas to Bin Qasim SEZ.
The issue of refund has already been taken up with Ministry of Finance and hopefully the same would be addressed in the upcoming budget. However, necessary directions from Prime Minister's Office may help expedite the matter.
The BOI is focusing on simplifying business registration through one window, simplifying tax regime, simplifying procedures and processes in each stage of business cycle. The focus of BOI plan is to introduce transparency through simplification of rules and regulations, automation and reduction time and cost involved.
Some facilitative measures including new web based software for Customs Act, 1969 clearance (WeBOC) have been launched in the major ports to improve the customs clearance. Around 70% trade is being cleared through green channels involving no human handling and physical examination for paying taxes.
Branch Offices status is approved by BOI on project basis and companies are not allowed to do commercial activities other than the designated project. For extension of business, this system should be relaxed for other commercial activities.
The condition to go to home country to get work visa after the BOI and MOI has processed the visa application may be removed.
The BOI has introduced online submission of branch office application for facilitating the investors. The BOI agreed that the branch office status has limited function and in this regard necessary amendments in the act, like elimination of condition for securing contract, will be recommended.
The visa submission procedures have been simplified as BOI has introduced online submission of work visa application for convenience of investors along with provision of online payment. As per visa policy introduced by Ministry of Interior, cases of grant and extension of work visas are processed within 4 weeks by BOI. Furthermore, BOI is also in the process of revamping the website to facilitate investors.
The Ministry of Interior may be directed by the Prime Minister's Office for making a bridging arrangement to legalize the stay of a worker by giving a temporary visa between expiry of a visa and application for renewal/extension.
A Japanese company has asked the BOI that the definition of "one time exemption" in the SEZ Act to be implied for the whole Project life of six years rather one time exemption only. The BOI responded that the definition of "one time exemption" in the SEZ Act is indeed implied for the whole project life cycle, subject to advance submission of complete business plan. There is no confusion in this matter and it was explained to the company during the meeting. In case of any regrets made by the customs authorities in this regard, BOI will provide full support in resolution of their issues.
A Japanese company is ready to inject US $460 million in the establishment of new plant for manufacturing of new motor vehicles with latest technology and also to inject US $200 million in the development of vendors for their new models. In total they offered new investment of US $660 million. The plant will have capacity of 100,000 units. They requested green-field status for 2 years as per existing policy similar to the one offered to brown field projects to provide them with a level playing field. The BIO responded that a detailed response to MoFA and Prime Minister's Office has already been sent, as the proposal does not fulfill the requirements under the Automotive Development Polity 2016-21, the BOI added.
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