Budget recommendations: OICCI for corporate tax at 30 percent for all companies

The Overseas Investors Chamber of Commerce & Industry (OICCI) has presented its Federal Budget Proposals for the forthcoming fiscal year aimed at increasing growth and investment into Pakistan.
The OICCI delegation comprising Secretary General Unjela Siddiqi, Farrukh Khan, Chairman Tax Subcommittee along with other managing committee and subcommittee members met Abdullah Yusuf, Chairman and other senior members of the Federal Board of Revenue (FBR) in Islamabad.
The OICCI emphasised the need to broaden the tax base and reduce the rate and multiplicity of taxes. Tax rates in Pakistan are amongst the highest in the region and are a disincentive to business and investment. OICCI recognised that the fiscal and economic environment has grown tough and pledged its full support to the FBR and GoP.
The OICCI Budget Proposals 2008-09, were well received. OICCI appreciated the positive attitude of Abdullah Yusuf and FBR members, who in turn appreciated the proposals presented by OICCI and discussed them in detail.
Separately, Waqar Malik, President of OICCI, emphasised that the budget should focus on agriculture, manufacturing and export sectors, which must be given the right incentives to grow. Additionally, tax base must be broadened so that there is a significant increase in the tax to GDP ratio. The emphasis should be on controlling imports and increasing exports, said Malik.
SUMMARY OF THE OICCI PROPOSALS IS AS FOLLOWS: OICCI appreciated the improvements in personal taxation made by FBR in recent years. The importance of this was highlighted for companies to attract and retain skilled manpower, especially in the face of competition for HR from tax free Middle East.
The OICCI highlighted that corporate taxes are very high in Pakistan as compared to other developing and developed markets in the region. Corporate tax is charged at a rate of 35% in Pakistan as compared to 27% in Malaysia, 29.7% in South Korea, 30% in Indonesia, 33% in China and 33.99% in India. The Chamber has recommended that the corporate tax rate should be capped at 30% for all companies.
The manufacturing sector in Pakistan faces - in addition to conventional taxation - taxes on account of Workers Profit Participation Fund (WPFF) and Workers Welfare Fund (WWF) which increase "cost of doing business" thus making their products less competitive with those offered by importers.
The OICCI proposed elimination of WPFF in its entirety or its utilisation through a fund (just like a provident fund) for the benefit of workers to build schools, hospitals etc (as 95% of the contribution on account of WPFF goes to the government after allocation to workers).
The intent of levying taxes on these two accounts discourages existing manufacturing concerns from expanding their businesses and also discourages foreign investors from setting up manufacturing operations. The chamber said that Federal Excise Duty (FED) in most countries is imposed to regulate and discourage consumption of items that are considered injurious to health, such as cigarettes and alcohol. However, FED is still being levied on basic consumer products, which the OICCI proposed should be removed.
Similarly, it has been proposed that companies should be provided an option of Presumptive Tax Regime (PTR) or NTR for their manufacturing/import/contract execution business. This relief is in line with the same relief that has been given to large trading houses. It is also recommended that the government should abolish the concept of value addition, as it is not as per the true concept of recoverability of sales tax in VAT mode.
OICCI has proposed the withdrawal of Withholding Tax on stock exchange transactions, as it will eliminate the chances of misuse by various individuals and financiers. Similarly, it is recommended that marginal tax relief should be introduced by the government against present criteria for the salaried class in order to avoid extra burden of tax due to nominal increase in remuneration.
The OICCI has also proposed that the third schedule of the Sales Tax Act should be deleted, as it obliges companies to suffer the sales tax on sales price, which does not pertain to the company, thereby eroding the true concept of sales tax law.-PR