PRE-BUDGET PROPOSALS BY AMERICAN BUSINESS COUNCIL
SADAF AURANGZAIB, Senior Correspondent
June 04 - 10, 2007
The American Business Council (ABC) is a chamber of US businesses in Pakistan and represents the largest group of single country investors. ABC members annually contribute over Rs.35 billion to the national exchequer and boast cumulative revenues of US$ 2.5 billion, investment of over US$ 1.3 billion and employment of approximately 26,000 persons directly and over half a million people indirectly. ABC currently has 62 Members ñ most of whom are Fortune 500 companies and which operate in various sectors of economy.
Food & Beverage (7)
Energy/Oil & Gas (6)
Chemical / Fertilizer (4)
AES Lal Pir
American Express Bank
MCR (Pizza Hut)
American Life Insurance
Riaz Bottlers (Pepsi)
El Paso Technology
Johnson & Johnson
Procter & Gamble
Merck Sharp & Dohme
Siza Foods (McDonald's)
Mobil Askari Lubricants
New Hampshire Ins.
Muller & Phipps
Sazgar (Maytag International)
The American Business Council has reaffirmed the same proposals which were presented by the Overseas Investors Chamber of Commerce and Industry (OICCI); they reinforce the OICCI instance on the High Corporate Tax, WPPF and WFF, Marginal Tax Relief for Salaried Class and Federal Excise Duty.
The following are a few additional points which they have proposed the government study and consider while formulating the upcoming budget of 2007-2008.
GENERAL SALES TAX
GST is the key to expand tax in Pakistan. This is to create a win-win situation both for Government and Registered Sales Tax payer. Presently no incentive is provided to registered entities compared with those companies which are still unregistered. It is recommended that the incentives should be provided to the Registered GST payers such as a rebate on utility bills, elimination of withholding tax on utility bills, audit exemption for 2 years. It is recommended that the sales tax rate for registered payers be 12.5% and 15% for un-registered firms.
The ABC appreciates government efforts in reducing the tax rate on salaries in the Federal Budget of 2006. However the effect of reduction was off set by the waiver of exemptions such as house rent, utility allowance amongst others. ABC has recommended that the government should at least revive the scheme of tax credits on gross income tax liability which was valid till 2005/06.
ADVANCE TAX — SEC 147
There were certain changes in Finance Act 2006 whereby now advance tax is to be paid on the estimate of income in the current fiscal year. This has created hardship for taxpayers as if there is a 10% variation; interest is also levied on the short payment beginning from the last quarter of the year. Over-deduction of Tax in one quarter cannot be carried forward to the next quarter. It is recommended that the law should be revised (as was applicable before) whereby advance tax was paid which was equal to one forth of the assessed tax liability. This will simplify and streamline tax process for good corporate citizens
PRESUMPTIVE TAX REGIME
Pakistan is the only country with this concept of Presumptive Tax. Since it is easier to administer, the government does not differentiate between if the company makes a profit or a loss (PTR is applicable on every person).Manufacturers cum importers do not have an option to merge their corporate profits for the purpose of Income Tax.
All should be taxed on profits only under SAS. Current process of audit should be continued for those entities whose accounts are not audited by the approved auditors
Option of Normal tax regime should be awarded to Manufacturers cum Importers fulfilling a preset criterion (in line with what was done last year for Large Trading Houses).
SALARY TAX ON TAX — SEC 12(3)
ITO 1979 allowed under the 2nd Schedule that tax of an employee borne by the employer will be exempt under the hands of the employee. Sec 12(3) of ITO 2001 has removed such exemption. ABC recommended that the previous exemption available shall be restored as it will reduce the burden on tax payers
ADJUSTMENT OF SALARIED CLASS INDIVIDUAL TAX CREDIT BY THE EMPLOYER
It is recommended that salaried class should be allowed deduction by his employer for the tax deducted on cash withdrawal, investment in Funds, tax deducted on phone bills. This move will also help the Govt. in making refunds to those individuals whose only source of income is salary.
GST ON PHARMA PRODUCTS
Currently pharmaceutical supplies are exempt from Sales Tax in order to minimise end consumers pricing. However input Sales Tax is not zero-rated, which increases the cost of production and hence higher prices. It is recommended that the medicines should be made zero-rated across the board. Making pharmaceuticals zero-rated will reduce the cost of production and will ultimately reduce consumer prices. Foreign investors will be interested in setting up new plants and the local industry will also be protected due to the excess inflow of generic products.
The American Business Council hopes that the government will take effective measure to ensure the successful implementation of the valid policies in order to attract more investment and to have a fertile growth of the economy.