Mandatory documentation of all segments of economy is essential if the government intends to broaden the tax base and reduce the burden on those already taxed.
This is one of the main recommendations of the Overseas Investors Chambers of Commerce and Industry (OICCI) contained in its proposals for the 2011-12 budget which were discussed during the visit of Chairman, Federal Board of Revenue (FBR), Salman Siddique and Additional Secretary Revenue Division, Asrar Rauf to OICCI here recently. "A significant percentage of economy remains undocumented and operates outside the tax net. Not only does this act as an impediment towards broadening the tax net, it discourages honest tax payer as well."
In her welcome address to Chairman, FBR, President, OICCI, Ameena Saiyid said that the Chamber acknowledged the progress that has been made over the years in the tax system as a result of the initiatives taken by the FBR and the Ministry of Finance. However, there are certain gaps that need to be addressed for the greater benefit of country. Being a representative body working to liaise between the government and foreign investors, OICCI has developed detailed proposals for review and consideration of FBR and Ministry of Finance, she said.
Ms Saiyid was accompanied by members of OICCI managing committee, Secretary General and Chairperson and members of the taxation sub-committee. OICCI has proposed the following as essential for improving taxation culture in the country:
--- Broadening the tax base: OICCI has recommended increasing the number of taxpayers as opposed to taxing the already taxed. This can be achieved through:
--- Agriculturists be encouraged to declare their income and file income tax returns, even when their income is exempt from tax. Alternatively, one of the areas, also to be considered is withholding tax or Federal Excise Duty on agricultural produce collected at the time of procurement.
--- Mandatory documentation of all sectors.
--- Offering incentives to registered entities to deal with tax compliant units only.
--- Effective utilisation of data available with FBR especially since 2007 when e-filing was introduced.
--- Using Nadra database to identify potential taxpayers.
--- Reduce differential in corporate tax for small companies and large corporations.
--- Introduce a system of independent monitoring of turnaround time of various application made to tax office.
--- Corporate tax rate be reduced to at least 30% to make Pakistan internationally competitive.
Final Tax Regime (FTR): The application mechanism of the FTR and Minimum Tax Regimes should be adjusted to ensure that the effective rate of tax does not exceed 35 percent.
Flood surcharge: The flood surcharge is discriminatory as it taxes the already taxed. OICCI strongly proposed that it should be abolished by June 30, 2011 as earlier announced by the government.
Employee welfare: In view of high inflation, the threshold for salary taxation should be increased to Rs 500,000, the existing upper limit for Tax Credit for Investment should also be increased to Rs 500,000 and life insurance should be allowed as part of investment allowance.
Sales tax issues: (a) Delays - Sales tax refunds amounting to billions of rupees are deferred due to discrepancies pointed by the STARR system. There is a need to streamline the entire refund verification and sanctioning process, and (b) Tax credit not allowed - sections 8(1) (ca) - OICCI proposed removing the following section whereby: "a registered person shall not be entitled to reclaim or deduct input tax on the goods in respect of which sales tax has not been deposited by the respective supplier into the Government treasury."
--- Workers Profit Participation Fund (WPPF) of 5% and Workers Welfare Fund (WWF) of 2% should be replaced by a consolidated levy.
--- FED on royalty payments should be withdrawn.
Zero rate procurement and Afghan Transit Trade (ATT): (a) Oil Marketing Companies (OMCs) should be allowed to procure zero rated products from local refineries for exports and supplies to foreign vessels and foreign flights proceeding abroad, and (b)
To curb the misuse of ATT, the negative list needs to be reviewed in order to make it more logical and realistic; a quantitative ceiling for imports is required by Afghanistan; imports under ATT should be subjected to custom duty which can be refundable subject to confirmation of goods actually reaching Afghanistan or as an alternative, duties and sales tax should be lowered for category of goods affected by the misuse of ATT.
OICCI has also recommended adopting progressive fiscal and tax policy measures that encourage Foreign Direct Investment (FDI), particularly in the manufacturing industry and remove impediments in the implementation of investor friendly tax policies/laws.
Chairman, FBR was receptive to OICCI proposals and informed that initiatives are underway to make the tax system progressive and simple in the long run. He greatly appreciated the professional approach that members of OICCI have displayed time and again which gives the institution its distinctive edge.
The OICCI sector specific tax proposals directly aim at identifying issues faced by respective industries covering automobiles, banking, engineering, fast moving consumer goods, oil and gas and pharmaceuticals were also discussed. OICCI believes that Pakistan is faced with a very difficult macro economic outlook. Tax receipts as a percent of GDP are low and inadequate to support the needs of the country. This indicates to a strong need for broadening the tax base. Further taxing already overtaxed sectors including OICCI members, manufacturers and the salaried class will only stifle economic activity. Therefore, it is in the government's interest to seriously consider OICCI taxation proposals, it said.
OICCI represents 194 foreign companies doing business in Pakistan, many of whom began operations in Pakistan over 60 years ago. It is the oldest trade body in the country and the region having been established 150 years ago. OICCI members collectively contribute over 29 percent of Pakistan's total GNP, 22 percent of total tax receipts, provide direct employment to approximately 250,000 people and spend Rs one billion a year on Corporate Social Responsibility (CSR). OICCI also plays an active role in terms of representation and advocacy to the government, various regulatory bodies, and policy makers.
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