“Existing tax payers are being subjected to what can only be described as tax tyranny,” states this year’s budget proposal by the Pakistan Business Council. Clearly, the country’s largest corporations are not mincing words in voicing their expectations from this year’s budget.
Tax reform is the vociferous cry from the PBC. Even as FBR boasts a 19 percent jump in revenue collection tally for 9MFY15 (YoY), the mules paying all the taxes (mostly white collar professionals and their employers) are crying out for the tax man to harness more mules to pull the revenue bandwagon.
Income tax reform is the top priority, according to the industry lobby. Of the 23 recommendations tabled this year by the collective advocacy platform for the country’s 47 largest business groups; 17 pertain to income tax.
The registered firms are reeling from the pinch of multiple taxation. The Alternative Corporate Tax is, at present, complemented with Minimum Tax. The latter also impedes the carrying forward of losses to reduce tax liability. The Minimum Tax has long peeved corporations as the previous government was also in a habit of tuning this rate to prop up revenue numbers. The current agony must be conflagrated since the rate was doubled to one percent.
Of course the jury is still out on the government side on the Minimum Tax since it is a tool for hefty collection. But the complaint that amendments should not be granted retrospective effect is undeniably fair and warranted.
Four other tax credit suggestions in the PBC’s wish list can be dubbed as measures for promoting industrialization. Three seem to be no-brainers; asking for extending tax credit available on “balancing, modernization and replacement” (BMR), to “extension and expansion”.
Among the five sales tax recommendations; two are aimed at refunds. The first proposal appears a no-brainer; that the rules of collecting withholding sales tax should not apply when making payments to registered suppliers. The second cites 10 percent differential in the input sales tax and the consequent adjustment allowed in output sales tax.
But the major premise of the sales tax reforms resonates with the “tax tyranny” allegations. Joint liability of registered persons within a supply chain where tax is unpaid and disallowing input sales tax on office equipment, furniture and vehicles; are the pressing complaints.
These columns have repeatedly highlighted that the over valuation of the local currency is making imports more competitive over locally manufactured goods. The impact on local businesses is evident; PBC has raised issue (for the umpteenth time) with under-invoicing and dumping of imported products and asked for industry consultation to be included in assessing the value of imports.
Other suggested amendments also draw attention to the fact that recently introduced reforms in income tax regime have, more often than not, further raised the burden on registered tax payers while the number of registered tax payers has not experienced any mentionable increase.
The General Sales Tax has come under similar criticism from other quarters, as the relatively high rate (17 percent) has created a lucrative opportunity for scrupulous businesses to fleece the public and pocket gains while under pricing the registered firms.
While the coming weeks will reveal the planned changes in tax regime for the upcoming fiscal, one hopes that meaningful administrative reform in FBR will also be initiated. There is dire need to quell the culture of ad hoc relief and enforcement. Unless the authorities can restore trust in the taxation system, it seems unlikely that many more people and firms will willingly join the ranks of tax payers.