Additional tax burdens to increase cost of doing business: OICCI

  • OICCI says federal budget 2016-17 short on bold tax broadening measures

The Overseas Investors’ Chamber of Commerce and Industry (OICCI) has complimented Finance Minister Ishaq Dar for announcing bold measures to boost agriculture growth and exports and for extending the timelines for tax credits under Section 65 of the IT Ordinance, the latter being one of the main recommendations of the overseas investors.

“OICCI considers the budget targets, especially the GDP growth of 5.7 per cent for next year, to be highly challenging and will depend considerably on the robust growth in the agriculture and export sectors,” commented OICCI President Shahab Rizvi. “Similarly significant long term incentives on CPEC-related projects and businesses linked to Gwadar free zone is another positive step”.

However, OICCI members were disappointed with the overall taxation proposals announced in the 2016-17 Finance Bill, many of which are regressive and need to be withdrawn in the interest of promoting investment in the country.

OICCI members consider that having done a good job to stabilise the economy the government might have missed the opportunity to leverage its excellent rating in all the recent business confidence index surveys by failing to announce in the 2016-17 budget bold and out-of-the-box fiscal measures and incentives, like those announced for the agriculture sector, to kick start the private sector investment, including the FDI, in the manufacturing and job creating ventures.

According to OICCI members, the budget proposals do not contain any worthwhile measures to improve governance, document the economy, bring the informal sector in the tax net, broaden the tax base, reduce the burden of the existing tax payers, reform the taxation system and improve Pakistan’s rating in the World Bank’s Ease of Doing Business Index.

OICCI members have strongly reacted to the proposed change in the definition of input tax to exclude the sales tax paid under respective provincial laws as it will have a wide-ranging impact across most of the business sectors.

“This is a fundamental departure in the sales tax regime which is governed under the VAT principles and would effectively result in increasing the cost of doing business,” according to Shahab Rizvi.

At the same time the imposition of super tax of four per cent on the banking industry and three per cent on other large taxpayers for another year is seriously damaging the business confidence especially of OICCI members.

“A clear understanding had been given last year that the super tax imposed in the Finance Act, 2015 was for one year only. This action is contrary to the demands of the investors for predictability, consistency and transparency in policies and will impact the credibility of the government with investors,” said Rizvi.

“The proposal to change the zero rating to tax exempt regime for Milk and other dairy items and the proposed basic structural change in the group taxation structure may also have serious negative implications on future investment in the country. This will result in levying more taxes on the compliant tax sector and defeating the whole purpose of encouraging formation of large entities with resources to promote diverse investment in the country” said Rizvi, adding that “the proposal to increase general rates of customs duty of 10 per cent and 15 per cent, by 1 per cent each to 11 per cent and 16 per cent, respectively, will negatively impact the consumer price index”.

Considering the large size of the undocumented economy, measures announced in the budget for penalising non-filers cover only a small portion of the informal sector of the economy. OICCI expectations for a robust and broad-based legislation to include all income groups in the tax net have not materialised. The emphasis is still on withholding taxes as compared to effective enforcement measures. The OICCI has always suggested that enforcement measures should be introduced by increasing capability and accountability at all levels.

Overall there is no substantial change in the ratio of direct and indirect taxes. A paradigm shift in this ratio was required to address the issues in income disparities and to reduce the burden of indirect taxes on the common man.