Additional tax burdens in budget to increase cost of doing business: OICCI

KARACHI: The Overseas Investors Chamber of Commerce and Industry (OICCI) have complimented the Finance Minister Ishaq Dar for announcing bold measures to boost agriculture growth, and exports and in extending the timelines for tax credits under section 65 of IT Ordinance, the latter being one of the main recommendations of 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 Shahab Rizvi, OICCI President. “Similarly significant long term incentives in respect CPEC related projects and businesses linked to Gwadar Free Zone is a 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with the overall taxation proposals announced in the 2016-17 Finance Bill, many of which are regressive and need to be withdrawn in the interest of promoting investment in the country.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 stabilize the economy the government may 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 agriculture sector, to kick start the private sector investment, including 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 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 4 per cent on Banking industry and 3 per cent on other large tax payers 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 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” commented Shahab 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” opined Shahab Rizvi and added “the proposal to increase  general rates of customs duty of 10% 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 penalizing 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 materialized. 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.

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