The American Business Council (ABC) of Pakistan has proposed the lowering of corporate income tax in the next fiscal budget for 20011-12. According to the budgetary proposals forwarded to the Ministry of Finance and Federal Board of Revenue (FBR), the ABC has proposed eight taxation related proposals impacting US companies operating in Pakistan.
Corporate taxes encompass lowering of the corporate income tax, revamping Worker Welfare Fund, rationalising minimum turnover tax for all companies, simplifying advance taxes for manufacturers and addressing the high rate of income tax at the import stage. According to a copy of the budgetary proposals received by APP, ABC observed that with a global shift towards indirect taxes, average corporate tax rates are coming down, among 116 countries tax rate has fallen from a high of 32.7 percent in 1999 to 25.5 percent in 2009.
In order to remain internationally competitive, Pakistan needs to reduce its corporate tax rate to a maximum of 30 percent in line with regional standards to be internationally competitive. Presently, corporate income tax hovers around 35 percent in Pakistan, India 33.6 percent, Indonesia 25.0 percent, Hong Kong 16.5 percent and Singapore with 17 percent. Touching on the rationalisation of minimum turnover tax for all companies, it recommended that to create a level playing field to the new entrants in the market the minimum tax should be reduced to 0.2 percent in the first three tax years of the company.
For existing companies who have made investments exceeding $500,000, it is also applicable for the year of investment to encourage investment in existing facilities. The Council advocated an expansion of the General Sales Tax (GST) regime applicable across all sectors of the economy. Unlike other collection sources, GST offers a steady stream of income and is collected evenly over the entire fiscal year, it added.
Referring to the government’s proposed plan to replace GST with Value Added Tax (VAT), it said that then government has to properly involve and consult all relevant stakeholders, including companies, trade and consumers on the implementation mechanism of this regime. The ABC maintained that Excise Duty was an additional tax burdening consumers, key source of government revenues be just three in the form of the GST, Custom Duty and Corporate as well as Personal Income Tax.
The body also proposed that pharmaceutical products, raw materials and packaging materials should be removed from the list of exempt items and be zero-rated for sales tax purposes which will slash the cost of doing business for pharmaceutical and reduce the prices of medicine. Elaborating on the duties on hospital supplies, it suggested the government to lower Customs Duty and do away with Sales Tax on basic hospital supplies which will benefit the poor as well.
Highlighting the problems related to payment of taxes by the corporate sector, it urged the FBR to convince NBP to provide electronic banking facilities to tax payers for tax payments without requiring to maintain bank accounts with NBP or alternatively, commercial banks be allowed to collect tax from their customers at their counters as agents of NBP. It will simplify the process without requiring NBP to invest in e-banking and to avail benefit from synergies of others banks which have e-banking facilities.
This proposal will expedite the tax collection process and ease the situation faced by such corporations, it observed.