American Business Council seeks cut in corporate income tax

Karachi: The American Business Council (ABC) of Pakistan has proposed lowering of corporate income tax in the next fiscal budget for 20011/12.

According to the budgetary proposals forwarded to the Ministry of Finance and Federal Board of Revenue (FBR), the ABC suggested eight proposals related to taxation impacting the US companies operating in Pakistan.

The corporate taxes encompass lowering of the corporate income tax, revamping Workers’ Welfare Fund, rationalising minimum turnover tax for all companies, simplifying advance taxes for manufacturers, and addressing the high rate of advance income tax at the import stage.

According to the copy of the budgetary proposals received by APP here on Tuesday, the ABC observed that with global shift towards indirect taxes, average corporate tax rates are coming down.

Among 116 countries tax rate has fallen from a high of 32.7 percent in 1999 to 25.5 percent in 2009.

In order to remain internationally competitive, Pakistan needs to reduce its corporate tax rate to a maximum of 30 percent in line with regional standards to be internationally competitive.

Presently, corporate income tax hovers around 35 percent in Pakistan; in India it is 33.6 percent, Indonesia 25.0 percent, Hong Kong 16.5 percent, and Singapore 17.0 percent.

About the rationalisation of minimum turnover tax for all companies, ABC recommended that to create a level playing field to the new entrants in the market the minimum tax should be reduced to 0.2 percent in the first three Tax Years of the company. For the existing companies who have made investments exceeding $0.5 million, the same should be applicable for the year of investment to encourage investment in existing facilities.

The Council stressed for expansion of General Sales Tax (GST) regime applicable across all sectors of the economy. Unlike other collection sources, GST offers a steady stream of income and is collected evenly over the entire fiscal year.

Referring to government’s proposed plan to replace GST with Value Added Tax (VAT), it said that then government has to properly involve and consult all relevant stakeholders, including companies, trade and consumers on the implementation mechanism of this regime.

The ABC maintained that Excise Duty was an additional tax burdening consumers; key source of government revenues be just three, GST, Custom Duty and Corporate and Personal Income Tax.

It proposed that pharmaceutical products, their raw materials and packaging materials should be removed from the list of exempt items and be zero-rated for sales tax purposes, which will reduce the cost of doing business for pharmaceutical and reduce prices of medicines.

About the duties on hospital supplies, it suggested the government to lower Customs Duty and do away with Sales Tax on basic hospital supplies, which will benefit the poor as well.

Highlighting the problems related to payment of taxes by the corporate sector, it urged the FBR to convince National Bank of Pakistan (NBP) to provide electronic banking facilities to taxpayers for tax payments without requiring to maintain bank accounts with NBP or alternatively, commercial banks be allowed to collect tax from their customers at their counters as agents of NBP.

It will simplify the process without requiring NBP to invest in e-banking and to avail benefit from synergies of others banks who have e-banking facilities. This proposal will expedite the tax collection process and make life easier for companies, it observed.

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