American Business Council of Pakistan (ABC) viewed the Federal Budget 2016-17 as a continuation of the status quo with respect to overall policy reform. While ABC members welcomed the government decision to extend tax incentives, under Section 65d on new plants till June 2019 and the continued reduction of corporate tax rate by 1 percent in line with plans to bring rates down to 30 percent by FY18. They also expressed concern over the lack of initiatives to broaden the tax net and to simplify tax administration for existing taxpayers.
"These moves will help promote Foreign Direct Investment within the country. Our member companies will factor in these tax incentives when making critical investment decisions. With corporate tax in Pakistan currently at 31 percent, they remain high when compared to the rest of the world. However bold reforms are required to broaden the tax base and simplify the taxation structure," Nadeem Elahi, President American Business Council of Pakistan said.
The investor group was of the view that while certain aspects of the budget could be considered investor friendly, other measures would have a negative impact on the overall business environment as, by increasing the cost of doing business and burdening existing taxpayers with indirect taxes.
Elahi said, "The extension of super tax has negated the positive impact of reducing the corporate tax rate". "Furthermore the proposal to exclude Sales Tax paid under provincial laws from the definition of input tax is a fundamental departure from VAT principles and will have an inflationary impact. All proposals should adhere to the principles of VAT and this proposal must be withdrawn immediately." he added.
The ABC acknowledged certain steps had been taken to increase the cost of not paying taxes in the last budget, such as the imposition of WHT on banking transactions exceeding PKR 50,000 for non-filers but highlighted that agriculture and real estate, the two main segments of the economy, largely remain outside the tax ambit.
"The implementation of growth-centric reforms and fiscal consolidation need firm attention throughout the year. With the IMF program scheduled to end in Aug-2016, plans to implement fiscal reforms need to be viewed with caution", the ABC President added. Needless to mention, the ABC has 67 members - most of them represent Fortune 500 companies.
They operate in various sectors ie healthcare, financial services, information technology, chemicals & fertilizers, energy, FMCG, food & beverage, oil and others. ABC members have not only cumulative gross revenues of US $4.0 billion but it has also contributed a sizable amount of Rs 102 billion to the national exchequer as direct and indirect taxes last year with over 34,000 employments.