KARACHI: The Overseas Investors Chamber of Commerce and Industry (OICCI) has proposed to align the effective corporate income tax rate with the average tax rate of countries in Asia, which is around 22 percent.
In addition to direct corporate taxes, companies also pay other levies like the Workers Profit Participation Fund (WPPF) at 5 percent, Workers Welfare Fund (WWF) at 2 percent, as both these levies are related to profit, the effective tax rate goes up significantly.
Sindh Development & Maintenance of Infrastructure at the rate of 1.2 percent of import value and stamp duty on purchase orders and contracts up to 0.3 percent of purchase value, together with many other local levies is increasing overall tax burden to about 40 percent of profits, which is a significant tax burden with consequential increase in cost of doing business.
“The government has already announced to gradually reduce the corporate tax rate to 25 percent, over the next five years, which is in line with OICCI recommendations. We would however, recommend that the rate should be aligned to the average “effective” tax rate of countries in Asia which is around 22 percent by eliminating labor levies which are paid on net profits,” OICCI noted in its proposals for the upcoming federal budget.
The banking sector tax rates have not been reduced in line with the general corporate tax rates. Furthermore, Finance Supplementary (Second Amendment) Bill 2019, proposes to again amend the First Schedule to the Income Tax Ordinance 2001, whereby, Super Tax of 4 percent is applicable on banks from tax year 2018 to tax year 2021. The Banks, in compliance with the prevailing taxation regime have already closed the tax year 2018 (accounting year 2017) and income tax returns have already been duly filed/assessed.
As a result of the proposed abovementioned retrospective application from tax year 2018 (Accounting year 2017), banks would now have to effectively pay super tax for two years or 8 percent instead of 4 percent in tax year 2019 i.e. 4 percent already paid in advance for tax year 2019 along with retrospective charge of 4 percent now being proposed for tax year 2018.
OICCI recommended that the application of super tax on tax year 2018 should be removed to avoid the double charge of super tax in tax year 2019. Furthermore, it is proposed that the same overall relief on super tax, granted to other industries, is also provided to the banking sector as well.
OICCI notes the sales tax rate in Pakistan, at 17 percent, is the highest in Asia. “Our analysis shows an average of less than 12 percent in Asia, with a range of 6 percent to 17 percent. Moreover different Sales Tax regimes and Sales Tax on Services rates within the country lead to a number issues for business organizations operating all over the country,” OICCI said and recommended all sales tax rates of the different jurisdictions within the country, should be reduced to 13 percent and jurisdiction be clarified based on origination or destination for services.
Overseas Investors Chamber of Commerce and Industry (OICCI) proposed the general rate of minimum tax regime (MTR) should be reduced to a maximum of 0.5 percent, and 0.2 percent for oil marketing companies, refineries, LNG terminal operators and large chemical companies with high turnover and low margins. Alternate Corporate Tax u/s 113C should be abolished.
OICCI further recommended that withholding tax regime should be simplified by reducing the categories of withholding taxes and the rates thereon. There should be maximum five rates for all withholding taxes and the differentiation should be on the basis of filer and non-filer only.
The chamber advocated incentives such as tax credits for attracting investment and proposed to re-instate the group dividend facility under Section 59AA/59B to facilitate formation of large entities and to restore the law which existed prior to the Finance Act 2016-17.[the_ad id=”31605″]