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Tax policies need suitable protection to ensure a 10-year phasing out period, urges OICCI chief

Interview with Mr M. Abdul Aleem – CEO, Overseas Investors Chamber of Commerce and Industry (OICCI)

Profile

Mr M. Abdul Aleem is a Fellow Chartered Accountant (gold medalist) and a Cost and Management Accountant with over 40 years of experience in senior management positions in leading multinational and national companies. He served in a senior executive role in Exxon Chemicals Pakistan, now Engro Corporation, for over 16 years before joining Pakistan Tobacco, which led him to move to British American Tobacco subsidiaries overseas as a CEO for operating companies in Indo-China and Indian ocean region. On return to Pakistan in 2004, Mr Abdul Aleem has worked in leadership positions for leading Government of Pakistan corporations and his last assignment was as Managing Director, Pakistan State Oil. Currently, he is the Chief Executive Officer (CEO) and Secretary General of Overseas Investors Chamber of Commerce and Industry (OICCI).

PAGE: WHAT ARE THE RECOMMENDATIONS BY OICCI FOR THE UPCOMING BUDGET?

M. ABDUL ALEEM: Tax policies, should be suitably protected to ensure a 10-year phasing out period so that investors base their plans on policies, which are consistent and predictable and transparent.

1- In the past two years, basic corporate tax rate has been reduced by one percent each year, but imposition of Super Tax @3 to 4%, has not only negated the impact of the reduction but has actually increased the effective tax rate. This unjustified levy should be removed from 2017-18 to re-build confidence with the foreign and local investors, which is critical for the growth of the economy.

2- Rates of corporate tax and sales tax to be reduced to 25% and 13%, respectively. Regional countries average rates: Income tax 22% and Sales tax 12%.

3- Need to revamp and simplify Withholding Tax Regime and reduce the number of tax rates from current 55 to 5 only.

4- Incentives for new investments in manufacturing industry to be made part of every budget.

5- A closer coordination between federal and provincial revenue authorities needed to avoid multiple taxation – for example:

Workers Welfare Fund (WWF) & Workers Profit Participation Fund (WPPF) jurisdiction and incorporating payments to provinces as tax deductible expenses in IT law, need to be clarified following the introduction of similar laws in the provinces.

6- Rationalize and reduce Minimum Tax Regime (MTR) for large sales value but low margin businesses like OMCs/Refineries/LNG Terminal Operators and Large Chemical Companies.

Tax policies, which lead to longer term investment plans to be suitably protected to ensure a 10-year phasing out period so that local and foreign investors could base their plans on policies, which are predictable and consistent over a reasonable time. The feedback of the Largest Tax Contributors should be taken before finalization of the Finance Act.

7- Growth in tax collections, over and above the projected growth from the organized sector, should be based on broadening the tax base and bringing new tax payers into the tax net. Targets for tax collection growth should be realistic – e.g. dramatic fall in oil prices.

8- Tax Reform Commission 2016 report be judicially and transparently implemented with periodical monitoring. (No major progress so far).

9- Faster processing of pending Income/ Sales Tax Refunds.

10- Structural reform in customs – in consultation with brand owners, to take into account issues of counterfeiting, smuggling, rationalization of duty structure and fixing of import Tariff prices.

11- Incentive be given for timely filing of Tax Returns.

PAGE: WOULD OICCI BE ABLE TO CONVINCE THE GOVERNMENT REGARDING THE DEMANDS MADE BY THE BUSINESS COMMUNITY FOR THE NEXT FISCAL YEAR?

M. ABDUL ALEEM: After submission of the OICCI taxation proposals to the federal and provincial authorities early in the year, we have engaged a number of times with most senior officials and have had some good interactive discussion on the key recommendations.

We have also conveyed to these officials not to compromise on policy and governance due to upcoming 2018 election and also avoid surprises like super tax on compliant and law abiding companies.

We have also focused on increasing the documentation of the economy, using the available data base from various sources at the disposal of tax authorities especially from withholding statements to aggressively broaden the tax base, substantially increase the revenue collection and reduce the tax burden on compliant organized sector including the salaried class. The responses from all the officials has been very positive with assurance for a serious review of all the proposals but for obvious reasons, no commitment has been given, which is understandable. OICCI has also emphasized the authorities to ensure predictability, consistency and transparency in government policies especially on taxation to kick start the economy and boost FDI in the country.

PAGE: WHAT ARE YOUR VIEWS ON THE BUDGET DEFICIT, TRADE DEFICIT AND CURRENT ACCOUNT DEFICIT DURING THE CURRENT FISCAL YEAR?

M. ABDUL ALEEM: As regards to budget deficit, OICCI recommendations include growth in tax collections, over and above the projected economic growth by broadening the tax base and bringing new tax payers into the tax net, whilst in respect of compliant tax payers targets given by the FBR hierarchy to the LTUs, should be realistic on research-based growth projections in different business sectors. For this purpose, OICCI recommends formation of a Research and Analysis wing at FBR resourced with high caliber professionals and experts to provide sector based economic and taxation projections.

We are also worried about declining exports level and widening trade gap and its impact on balance of payment and wider impact on the economy of Pakistan. We are confident that the economic team of the country will be more worried of the situation and will be devising robust strategy to manage the situation. But this is no doubt a very serious matter for all those interested in the economy of the country.

PAGE: HOW WOULD YOU COMMENT ON INTEREST RATES AND THE STATE BANK OF PAKISTAN?

M. ABDUL ALEEM: We are aware that the State Bank of Pakistan takes into account prevailing inflation and some other factors before fixing their policy rate, which in turn forms the basis for the lending rates banks offer to businesses. Our comment would be to keep a tight leash on inflation and to ensure that bank lending rates remain competitive for businesses.

PAGE: HOW WOULD YOU COMMENT ON PROVINCE-WISE BUDGET AND WHAT IS YOUR STANCE ON IMF?

M. ABDUL ALEEM:

– We urge all the revenue authorities to continue an effective engagement in proactively resolving all issues including synchronization of the policies, standard tax rates and removal of all anomalies/conflicts between the laws of the different revenue boards. Policy makers should always bear in mind that foreign investors, have invested in Pakistan and not in any particular province and therefore should not be made to suffer pending resolution of inter-governmental issues/conflict.

– We appreciate the efforts being made by the provincial revenue authorities to increase revenue collection and also the reduction in sales tax rate on services from 14 to 13%, in the last Sindh Provincial Finance Act, which is by far the lowest sales tax rate in the country. However the provinces need to undertake major structural changes which include integration of all taxes/levies within one ministry/department. We have also recommended that tax on agriculture income be levied on actual and not notional income including on rental income of agricultural land of the absentee landlords. At the same time, small farmers should not be subject to tax as is the case for individuals in the income tax.

– The IMF has generally been supportive and has helped the country in ensuring financial discipline. However there should be a balance between policies needed for growth of the businesses and economy and the stringent IMF requirements.

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