DIFFICULT DECISIONS NEEDED TO BROADEN TAX BASE: OVERSEAS INVESTORS
June 13 - 19, 2011
Naved A. Khan, President - Overseas Investors Chamber of Commerce and Industry (OICCI) and the Chief Executive Officer at Faysal Bank in his post budget comments has said that overseas investor's community generally appreciates the positive budget in the given circumstances.
However, the overseas investors feel that the government needs to take difficult decisions to broaden the tax base and increase tax to GDP ratio.
It is worth mentioning that Naveed Khan has over twenty-six years of work experience with twenty four years of broad-based and varied corporate and investment banking experience. His last assignment was as Chief Executive Officer, ABN AMRO Bank Pakistan Ltd with the primary responsibility of strategic management of the bank's local franchise and its key businesses. Prior to joining ABN AMRO, he has been associated in senior management positions with Bank of America, Pakistan. Naveed Khan holds an MBA from Butler University, Indianapolis, USA. He was the President of Pakistan Banks Association for 2006 & 2007.
Currently, he is the Vice President of Institute of Bankers Pakistan (IBP), Chairman of its Academic Board and Member of IBP's Council, President of the Management Committee of Overseas Investor's Chambers of Commerce and Industry (OICCI) and Chairman of OICCI's Banking, Leasing and Insurance Sub Committee, and Member of the Board of Karachi Shipyard and Engineering Works, Member of the Board of Fauji Fertilizer Bin Qasim, and Board Member of Rotary Club of Karachi Metropolitan.
Looking at the budget 2012, Naveed said that the OICCI takes the budget as positive despite the economic difficulties and operating constraints prevalent in the country.
Through the Budget 2011-12, the government has tried to provide relief to the business community. The overseas investors understand the difficult financial circumstances facing the country. OICCI members will continue to play their part in contributing towards the economic recovery of the country.
He however expressed the hope that the government will make the difficult decisions of broadening the tax base and adopting taxation policies that will encourage FDI and local investment on a sustained basis.
POSITIVE FISCAL MEASURES
The government's announcement of discontinuing the flood surcharge and special excise duty along with removing regulatory duty and one per cent reduction in general sales tax (GST) has been widely appreciated. This will certainly reduce the cost of doing business and will provide much needed relief amidst increasing costs of security and power. The increase in income threshold will help salaried individuals, while provision of tax credit for equity-based investments in manufacturing facilities will help in promoting the industrial sector and in creating additional job opportunities in the country.
However, the budget does have certain grey areas that have negative implications for some segments of the economy. He invited attention of the government towards some major areas of concern for investor community.
BLACKLISTING AND ITS RETROSPECTIVE EFFECT
As per the proposed changes in Section 8(1) (ca), a refund/adjustment will be retrospectively disallowed to the buyer, if a supplier has been declared blacklisted. The retrospective effect of this change should be removed because a genuine taxpayer cannot be debarred from a tax adjustment from a party who was an active taxpayer at the time of purchase.
PAYMENT FOR GOODS AND SERVICES
The proposed amendment in section 153 will increase the tax incidence on corporate entities engaged in rendering services, which includes freight forwarding, logistic partners and financial services. Affected companies will pay minimum tax at six per cent of revenue irrespective of their profitability as against one per cent applicable otherwise which makes the amendment discriminatory.
The OICCI has recommended to the FBR to reconsider the anomaly and redress the grievances of the affected business sectors, Naveed said.
FED ON FRANCHISE FEE
The Federal Excise duty (FED) on Franchise fee is not in VAT mode and thereby is not allowed for adjustment and is absorbed by the remitting company as cost. He suggested that the franchise fee, which is remitted through normal banking channels, should be allowed for adjustment.
Zero Rating of Sales Tax for Pharma industry - the industry should be exempted from the payment of input sales tax in line with the spirit of adjustable tax since the industry is not liable to output sales tax.
The withdrawal of the exemption for computer software (Sixth Schedule) - the said withdrawal should be reconsidered as proposed 15 per cent sales tax on software will negatively impact growth of IT and knowledge based industry in the country.
OICCI recognizes that the revenue target of Rs1,952 billion is a challenging task yet it is achievable if the government is able to substantially enhance the tax collection from new assesses including from the 700,000 plus tax evaders indicated by the finance minister in his budget speech.
Naveed Khan said that OICCI has been an ardent supporter of increasing the tax base and has shared practical suggestions to do the same via its budget proposals to the government. The Chamber hopes that its proposals will aid the government in devising policy that will make such a target attainable.
It may be mentioned that OICCI represents over 180 foreign companies doing business in Pakistan, many of whom began operations in Pakistan over 60 years ago. The oldest chamber in the country and region having been established 150 years ago today collectively contributes over 29 percent towards Pakistan's total GNP, 22 percent of total tax receipts, provides direct employment to approximately 150,000 people and spends over Rs1 billion a year on Corporate Social Responsibility (CSR).