The upcoming budget

The federal cabinet has undergone a major change hardly eight weeks prior to the presentation of the national budget 2021-22. The ignominious exit of Federal Minister of Finance Dr Hafeez Sheikh is the most significant development in this regard. The finance ministry is now headed by Hammad Azhar with the expected induction of Shaukat Tarin into the Economic Advisory Council. This non-constitutional and independent body, which is headed by the prime minister, will be reconstituted anytime soon. What remains undisturbed at this crucial phase of budget preparation is the bureaucracy which in the face of unsettled political leadership in the ministry may now have a larger role in budget preparation than what it had before.

Traditionally, the government invites recommendations from business chambers and other stakeholders at the time of budget-making. Though tragically, these recommendations are often superseded or set aside due to government’s own priorities of fiscal targets for revenue and tax collection, which in these times is governed by the targets agreed with the International Monetary Fund (IMF). The budget-making in Pakistan is a short-term year-to-year exercise - devoid of any strategic approach and planning.

Recommendations from trade and industry have started to surface in the print media. Early this week, The Overseas Investors Chamber of Commerce and Industry (OICCI) announced comprehensive taxation proposals for Budget 2021-22. It highlighted many meaningful measures that are needed to streamline the complex tax regime, incentivise the legitimate taxpayer through ease of doing business measures, tax compliance and filing of tax returns by all income earners.

The high point of this year’s proposal is the commitment of OICCI members to the country they function in. That the onslaught of Covid-19 is relentless is a fact. In view of severe stress and exceptional challenges being faced by the economy due to this pandemic, the OICCI members have volunteered not to seek a number of taxation relief measures which, under normal circumstances, would have been justified to boost Foreign Direct Investment (FDI) and help align Pakistan to compete with other regional countries. Hopefully, the other business chambers of the country would exhibit a similar commitment at the time the nation is faced with a slew of challenges.

The following are OICCI’s key recommendations:

(1) The minimum tax regime should be rationalized with a lower level general tax rate and reduced to 0.2 percent for industries that have high turnover and low/government regulated margins. (2) Withholding Tax regime (WHT), that has over 45 rates, is cumbersome and needs to be rationalized to 5 rates for filers. (3) Final Tax regime should be abolished and all withholding taxes made adjustable. (4) FBR should ensure that all those persons who have been subjected to withholding taxes should file tax returns regularly. (5) Introduce one unified sales tax rate of 13 percent as applicable in Sindh for sales tax on services and one common tax return form throughout the country. (6) Only a single tax return be filed with FBR instead of separate ST returns to the authorities in every province. (7) Income Tax rebate of 2 percent for Shariah-compliant investment has not been effective and the intent of the regulators will not be realized until these are strictly aligned with Securities and Exchange Commission of Pakistan’s (SECP’s) Shariah regulations. (8) Federal Excise Duty (FED), on unmanufactured tobacco should be substantially increased to arrest massive tax evasion in this sector. (9) Stringent penalties for illicit trade should be introduced and implemented across the whole value chain. Pending review and revision of the Afghan Transit Trade Agreement (ATTA), there is need to harmonize duty and tax rates to remove the incentive for duty evasion. (10) To facilitate ‘Ease of Doing Business’ and promote tax culture in the country, the tax regime should be simplified with a massive reduction in the number of tax payments and filing of various forms/returns. (11) Pending tax refunds should be settled within 45 days and inter-adjustment of income/sales tax refunds be allowed in the law. (12) In line with the latest focus on digitization of the economy in the country, FBR and associated tax authorities need to gear themselves up for greater use of digital technology, including Artificial Intelligence tools data analytics. They must effectively use a strong data base already available with Nadra and other documented sources so as to ensure that all income earners regularly comply with tax requirements.

There cannot be a better understanding of the need of the industry than as reflected in recommendations put up by OICCI which has the distinction of being the collective voice of over 200 members, representing all the large foreign investors in Pakistan, originating from 35 different countries and operating in 14 different sectors of trade and industry. Over 56 OICCI member companies are listed on the Pakistan Stock Exchange and 50 members are associates of the 2020 Global Fortune 500 companies.

Contributions by OICCI members constitute over one-third of total revenue collections in the country. They invest over $3 billion in new capital expenditure every year. Corporate Social Responsibility (CSR) initiatives by its members benefit over 62 million underprivileged people.

The recommendations put up by OICCI therefore merit due consideration by the policymakers.

(The writer is former President of Overseas Investors Chambers of Commerce and Industry)

Copyright Business Recorder, 2021