The Member Direct Taxes of Central Board of Revenue (CBR), Salman Nabi, has said the international comparison of different corporate tax regimes could only be done taking into account the overall levies applicable to the corporate sector of that country.
He gave these remarks during a presentation by Chas Roy Chowdhury, head of the taxation of the Association of Certified Chartered Accountants (ACCA), UK, on "British/European taxation system", held at the Securities and Exchange Commission of Pakistan (SECP) on Tuesday.
He opined that the overall tax regime should be examined while comparing corporate tax rate applicable to one country with the other. Salman elaborated the corporate tax rates in India and Japan where the industrial sectors have to pay other levies as well, which would ultimately increase quantum of tax on that particular sector. In Japan, the corporate tax rate is 30 percent, which is also liable to pay 10-11 percent local levies as well. In this way, the overall amount of tax is higher as compared to the original levy of 30 percent.
On the other hand, Pakistan has relatively higher rate of 35 percent tax against 30 percent, but the corporate sector is not required to pay other local levies, including surcharges, he said. Salman Nabi said it would not be appropriate to speak about the rate in isolation, but the overall corporate tax regime must be taken into account in this regard.
Responding to an observation made by Chas Roy Chowdhury that it is a global practice that the revenue goes up when the tax rates come down, Salman said that there is no 100 percent guarantee that the philosophy of decreasing tax rates for increasing revenue would work. In early 1990s, tax rates in Pakistan were reduced, but there was no substantial increase in overall revenue. However, recent reduction in tax rates ultimately resulted in major increase in revenue collection.
Talking about the comparative tax regimes in Europe and Asia, Chas Roy briefed on various forms and levels of taxation in Europe and certain countries of Asia. The talk focused primarily on United Kingdom in which he defined the application of taxation rules and regulations to various business entities. He highlighted that four major taxes are applicable in UK. These are income tax, corporate tax, value-added tax (VAT) and capital gain tax. In case of income tax, there are interest and penalties applicable to late filing of income tax returns. The British tax authorities are considering changing the return filing date.
Similarly, the corporate tax is applicable to companies and late filers have to pay penalties as well. Explaining the VAT, he said the harmonised system is applicable across Europe. Different rates and rules/regulations are enforced in European countries. The small businessmen have a separate simplified system of VAT. The VAT flat rate system is applicable to the total turnover. He clarified that the capital gain tax covers both the income and corporate taxpayers.
He also explained the tax system applicable in Singapore with particular emphasis on exemptions applicable in the country. Chowdhury also talked about the importance of ethics as a good management practice and summarised findings of various research reports written in UK.
Highlighting the examples of recent corporate scandals such as Enron, he expounded on the particular importance of ethics for financial managers. A question-answer session followed in which representatives of the SECP and the CBR talked about the relevant issues and practices in Pakistan.
CBR Member Customs Shahid Rahim Sheikh raised a query pertaining to the issue of ethics, whereas Member Legal Mumtaz Ahmed talked about the international corporate tax rates applicability. CBR Member Audit Abdur Razzaq asked about the audit-related issues during the question-answer session.
SECP Chairman Razi-ur-Rahman Khan, CBR Chairman M. Abdullah Yusuf, senior management of both organisations and head ACCA Arif Masud Mirza attended the session. Razi-ur-Rahman Khan thanked the participants, saying that such information exchanges were useful to promote a greater understanding of international regulations.