Karachi Tax Bar Association (KTBA) has claimed that around 75 percent of the Workers' Profit Participation Fund (WPPF), which is five percent of companies' profit, is not serving its purpose and going to the government. In its budget proposals for the year 2016-17, KTBA said that companies, in addition to the corporate tax, paid a Workers Welfare Fund (WWF) at the rate of 2 percent of their taxable income and WPPF at the rate of 5 percent of their profit; resulting in a tax impact of approximately 40 percent.
The bar is of the view that this sort of levy discourages the existing manufacturers from expanding their business in Pakistan and at the same time keeps away foreign investors from setting up manufacturing operations in the country.
Besides, this levy increases the cost of doing business in Pakistan and makes the products of manufacturers less competitive. KTBA said that with the increase in salaries, most employees were now above the threshold limit and, therefore, not entitled to any benefit from the levy of WPPF. "A bulk of the deduction goes to the government; studies show that around 75 percent of the total WPPF charge go to the government and only 25 percent is being given to the eligible employees," the KTBA claimed.
KTBA proposed that instead of further burdening the taxpayers with WWF and WPPF, these levies might be withdrawn and an Endowment Fund might be created out of the existing funds available with the government. The profit earned from such a fund might be utilised for the benefit of the workers, KTBA suggested. It further suggested that companies should be allowed to utilise WWF and WPPF as Provident Fund for the benefit of their workers, such as, building schools, hospitals etc. KTBA observed that this would not only ensure benefits to the workers, but also lead to reducing cost of setting up businesses in Pakistan.