ST, corporate income: EAC panel recommends reduction in tax rates

The working group on taxation of the Economic Advisory Council (EAC) has strongly recommended reduction in the existing rate of 17 percent sales tax and 35 percent corporate income tax in the budget (2011-12). Sources told Business Recorder here on Saturday that the sub-group on taxation has submitted its recommendations before the EAC meeting for consideration in the budget.
As per the recommendations, the tax rates need to be reduced to bring more people in the tax net. The government will get more revenue by reducing the tax rate, as well as improve the tax to GDP ratio. The existing 35 percent income tax including 7 percent Workers Welfare Fund/Workers Profit Participation Fund is very high.
The small businesses have to pay 20 percent, thus they do not want it to scale up. The corporate tax rate of 35 percent is the highest in the region. At the same time, the sales tax rate is also very high and needs to be reduced to get businesses to pay and join the tax net.
It has been further recommended that the plant and machinery should be duty-free. There is no reason to tax the industry, which is starting up. The earnings should be taxed and not the investment. The sub-group has further recommended that the industrial policies should be long-term and for minimum 5 years. The FBR should also make it mandatory for the commercial importers to file income tax returns.
The sub-group further recommended that the bankruptcy laws need to be put in place, so that companies could survive beyond difficulties. Without technology our industries will not grow, as there is almost no R&D in universities & industry in Pakistan. Some financial assistance (tax credits) be provided as grant to SMEs when acquiring technology assistance/training of staff.
The import of second hand/used products, except machinery, should not be allowed. Pakistani commercial market is substantially cornered by unethical traders, smugglers and second-hand product importers. The FBR should discover the new taxpayers and avoid killing the goose that lays the golden eggs, by not only overtaxing, but also conducting audits of sorts, making them spend unnecessary time and money.
The working group was of the view to enable the small & medium sized industry to scale up, there is an immediate need to curb the under-invoicing and misdeclaration. The differentiated sales tax at import for trade & industry; lower for industry. The import prices to be fixed in conjunction with industry associations, as was done for tea industry. The data of all imports should be visible, as was previously done through Pakistan Revenue Automation Limited (Pral). It further recommended that the under invoiced products be allowed to be bought at 10 percent higher price by an industrial unit.
The government departments should make procurement only from sales tax registered suppliers. The FBR should announce some incentives for obtaining sales tax registration. "Outward and inward cash remittance beyond $50,000 be questioned," it recommended.
The government should conduct industrial survey to get all industrial units registered under Sales Tax regime and electricity bills could be used to identify new taxpayers. Through another recommendation, the retail sector should be allowed to pay sales tax to create a level-playing field for products from any source procured through any form of funding.
The sub-group further recommended that the infrastructure, including energy, water, etc, must be improved for competitiveness. The corporate governance in SOEs is necessary to make them competitive and viable. Law & order has to be improved dramatically. Extortion, abduction, burglary, snatching, etc, threaten investment or competitiveness. There is need for broad-based revenue collection improvement. Moreover, there is need for revaluation of real estate after a defined frequency, and tax capital gains, in both urban and rural areas, working group of the EAC added.