Overseas Investors Chambers of Commerce and Industry (OICCI) has noted with grave concern that despite several legislative measures to make the laws more robust and enforcement more effective, tax-to-GDP ratio is continuously declining, from 13 percent in 1998 to less than 9 percent in 2012-13. More regrettable is the fact that 88 percent of total revenue collection by Federal Board of Revenue (FBR) is through withholding tax regime whereas total collection from enforcement measures is only 12 percent.
In a communication sent to Business Recorder on Friday, OICCI said the society is not inclined to join the taxpayers club, due to multiple reasons including the image of tax collector, as it also plays a very pivotal role. "The rampant corruption, missing accountability of underperformers in delivering optimal collections from Income tax, Sales tax, Customs and Excise combined with brazen misuse of power are the burning issues need to be addressed," it said. During the interactive session with Federal Board of Revenue (FBR) members on March 28, 2014 the Chamber in its presentation to the FBR team also highlighted the World Bank's Ease of Doing Business (EODB) Index rating where Pakistan has sharply slipped from being 75 in 2010 to 110 in 2014 which has considerable negative implications in attracting Foreign Direct Investment (FDI) in the country. It was pointed out that one of the key irritant in EODB has been the complications in paying taxes, including provincial and local taxes. .
Concerns were also expressed during the meeting on the reversal of some important documentation measures which were introduced through the Finance Act 2013-14 and the frustration of honest taxpayers. Emphasising on introduction of accountability in tax administration, OICCI said that despite processes in the form of internal audit and investigation being legally available, tax departments have not been able to deliver largely due to the fact that these departments are not independent nor made accountable.
"Successive finance ministers have publicly mentioned that corruption runs into hundreds of billions of rupees, but in the last 10 years no agency including NAB, FIA or FBR itself has taken any strong action against its unscrupulous elements," it added. OICCI has, therefore, made following suggestions to overcome this messy situation:
-Element of corruption should be eliminated or minimised by taking strong action and making a few examples through strong accountability.
-- The internal control processes of FBR should be re-evaluated and its operation and effectiveness should be ensured by the establishment of a monitoring board comprising professionals and business executives to oversee the transparency in FBR.
The performance of the tax collectors should not be judged solely on the basis of tax collected, but their efforts on documentation and broadening side should be appreciated.
-- Income tax department should have one online system. Every tax officer should be provided with login ID and password. All notices and communications with taxpayers should be made through that system. Initially for a period of one year, both online and documented system should function.
-- Every document generated from the system should be pre-numbered and dated, which could not be modified once it is sent to the taxpayer. Each case should be assigned a unique number by the system and all proceedings should be recorded under that system; even if the proceedings of the case are finalised in the Supreme Court.
-- The use of an effective information system can easily identify the performance of the tax officers, and reduce collusion of tax officers with the taxpayers. Further, there should be a monitoring body within the tax department to review internal records of assessments, whereby tax officers are called to explain any discrepancies in the proceedings.
Besides this, OICCI considers it necessary that authorities search for new potential tax avenues and to that end a cell should be established within FBR to look into new areas where taxes could be introduced. On the issue of disallowance of unrealised loss on foreign exchange/ derivative contracts, the chamber commented that tax assessing officers are interpreting the law contrary to the clearly stated clauses to increase tax liability of banks. Therefore, it has recommended that administrative instructions should be issued to field officers to follow 7th Schedule and not disallow unrealised foreign exchange losses provided in law.
Regarding de-notification of Services under FED Act 2005, OICCI has expressed concern that despite the passage of the 18th constitutional amendment and setting up of provincial revenue authorities, FBR has not de-notified the services under FED Act 2005 which are now chargeable under the provincial legislation, and has recommended that this should now be done without loss of further time.
On the issue of calculation of depletion allowance, OICCI stated that for the past five years, tax authorities have started disputing the calculation of depletion allowance taking the view that depletion allowance should be calculated at wellhead values after deduction of royalty, which is incorrect as wellhead value includes royalty.
The chamber has therefore suggested that following clarification be added under Rule 3 of Part 1 of the Fifth Schedule to the Income Tax Ordinance, 2001 in order to resolve the long outstanding dispute between the parties - "The term 'gross receipts', for the purposes of Rule 3, means gross sales including gathering, processing and transportation cost and royalty."
In addition to the above, the OICCI has also given several industry specific proposals relating to the automobile, financial services, chemicals, pesticides, fertilisers, dairy products, engineering, FMCG, oil, gas and energy, pharmaceutical and telecommunications sectors.
The OICCI, which is key stakeholder in the economy of Pakistan, and whose members contribute over Rs 700 billion annually to the federal and provincial revenue, contended that the above recommendations take into account various tax-related aspects like restructuring taxation system to facilitate investment and economic activity, facilitate the honest taxpayers through timely settlement of issues, that all types of income are subject to tax, SRO's are judicially eliminated and documentation of the economy.
The OICCI, a business chamber representing nearly 200 multi-national companies operating in Pakistan, is a very important stakeholder and contributor to the economy of the country. Its members companies, whose major shareholders are from 35 different countries of the world, operate in 14 major business sectors of the country, including the financial services, oil, gas, energy, pharmaceuticals, chemicals, fertilisers, pesticides, cement, food, consumer goods, engineering, trading and others. As many as 57 of the OICCI members are listed on the Stock Exchanges of Pakistan and 46 members are associates of the 500 largest companies of the world listed by the Fortune magazine in 2013.
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