Reduction in corporate tax rate and capping it at 30 percent will accelerate investment and encourage corporatisation in Pakistan. This is one of the main suggestions made by the American Business Council of Pakistan (ABC) for the 2005-06 Federal budget. According to the ABC, corporate taxes are very high in Pakistan when compared to other developing and developed markets. It said the highest rate was in India, ie 35.88 percent followed by Pakistan 35 percent, and the lowest was in Singapore ie 22 percent.
In Pakistan, the ABC said, key utilities and infrastructure still had a long way to go to be at comparable levels of other developing markets. Hence, charging a rate higher as against these markets did not make sense as most companies ended up making additional investment in water, electricity and security, which in most cases should be provided by the government agencies, it said.
Regarding the customs tariffs, the ABC proposed the government must strive to resolve all customs duty anomalies, especially those related to primary raw materials. Through various anomalies' forums, the ABC observed, the government was aware of all the anomalies that existed in the current tariff structure.
The government should not impose any customs duty for all primary raw materials that were not locally available and could not be consumed without further processing (currently five percent is the lowest bracket of the customs duty available to manufacturing entities to input raw materials), said the ABC.
The ABC further said machinery and equipment that was not locally available must also be brought to zero percent duty (current five percent is the lowest bracket of the customs duty available to importing machinery and equipment that is not available in Pakistan).
On the general sales tax (GST), the ABC proposed to reduce the GST rate from 15 percent to 10 percent to discourage evasion and encourage participation. To expand the tax net, registering for the GST acceptance was crucial, it added.
The ABC suggested that some sort of incentive must be given to only registered entities, such as rebate on utility bills, elimination of withholding tax on utilities for registered entities only.
It recommended a moratorium on GST audit to traders for one to two years and simplification of the GST payment and submission process.
The GST payable should be on transfer of title and not on advanced payment of goods, it suggested.
The suggestions also covered presumptive taxes, personal taxation, central excise duty, professional tax, audit assessment and collection, sales tax audits, employees concern, withholding tax, appeal process and miscellaneous suggestion to improve the tax environment.