Published Date: May 14, 2017
CIPE proposes measures to boost investment
The Centre for International Private Enterprise (CIPE) – Sustainable Development Policy Institute (SDPI) has proposed several measures to boost investment.
These measures were suggested after the pre-budget meetings, focus group discussions and key informant interviews held in between November 2016 and February 2017.
Most taxpayers are not complaining of the actual financial burden of taxes, but the costs associated with the compliance with various taxes, it said.
“In our bid to increase tax revenues and revenue collections of multiple authorities, the current tax regime has burdened the existing taxpayers, ie, salaried class and industry. It is proposed that only a single return should be filed for all forms of taxes and this return should be submitted to a single tax authority, it suggested.
Currently, industrial sector ends up paying most of the corporate tax contributions due to the lack of documentation in other sectors of the economy. The use of ICT tools, biometric information and a data warehouse that links banking information with the Nadra’s database can help the efforts of tax authorities to earn revenue from untapped sources, it added.
The CIPE also proposed that the reform for corporate taxes should also aim at boosting corporatisation of businesses. The cost related to annual and other reporting and compliance also needs to be reduced for corporate taxpayers, it proposed.
Currently, there are 58 withholding taxes on utilities, traded goods, ICT, banking transactions, remittances, asset transfer, real estate transactions, etc, which is responsible for increased informal sector of the economy, as a large number of small-scale manufacturing and services sector entities are reluctant to formalise their business. A gradual reduction in the withholding taxes is possible once efforts to increase overall direct tax base are successful, it said. The government through the budget 2015/16 has burdened the small and medium enterprises (SMEs) in the industrial sector (through regulatory duties and high effective general sales tax), rather than recognising the losses the SMEs have incurred due to the lack of energy, non-processing of tax refunds by the Federal Board of Revenue (FBR), reluctance of the banking sector to lend for working capital, etc. The direct tax rates faced by the SMEs should be rationalised and the sales tax rate across-the-board should be gradually reduced to a single-digit, it was suggested.
The Bhurban Declaration at All Pakistan Chambers Presidents’ Conference 2017 demanded that in the context of recovery of tax demand under Section 140 of the Income Tax Ordinance 2001, the government has been urged that a portion of tax demand needed to be deposited to make an appeal may be reduced to 10 percent from the existing 25 percent.
Further, Section 38 A&B, 40 & 40B of the Sales Tax Ordinance 1990 may only be exercised by Member (or equivalent ranking official) of the Federal Board of Revenue (FBR), rather than the regional tax office authorities. It is recommended to stop all the raids on the business community by any authority of the FBR, including Intelligence and Investigation Branch.
The FBR may be asked to look into the unnecessary ‘differentiated’ slabs of corporate taxation, the part of the Finance Act that discourages investment in the renewable and alternative means of energy generation should be removed, business community should be taken into confidence regarding the utilisation of levies such as gas infrastructure development cess, procedures in the import of petroleum products for raw material should be rationalised, and the issue of circular debt, untargeted / hidden / cross subsidies, and high non-receivables in the energy sector should be resolved.
The management of the circular debt needs to be made more transparent with the real time technical and financial losses posted online, it suggested. Currently, investment diplomacy is being handled in a fragmented manner by the federal and provincial boards of investments, Planning Commission (in case of CPEC), economic affairs division, ministry of foreign affairs, and the ministry / departments of industries and production. The efforts to lure investment from abroad lack coordination.
Profits from an electric power generation project, information technology services, export of software and IT-enabled services are exempted from tax. Similarly, some exemptions have been allowed to Chinese investment regarding which the Parliament and local businesses require clarity. All incentives allowed to foreigners should be available for local investors, as well, it proposed.
It was also suggested that the Finance Act 2014 levies 20 percent corporate taxation on foreign investors for a time period of five years in setting up a new plant. This is in contrast to the local investor who is being charged a rate of 33 percent.
Some businessmen are of the view that such concessions can cripple the local industry and reduce incentives for longer term investment by local investors. The position is opposite in India where corporate tax rate is 40 percent for foreign investors and 30 percent for local businessmen.