ISLAMABAD: The American Business Council (ABC) of Pakistan has proposed to the Federal Board of Revenue (FBR) to take effective measures in budget (2021-22) for encouraging American citizens of Pakistan-origin to invest in projects, real estate, and set up bank accounts.
The budget proposals of the ABC submitted to the FBR for 2021-22 revealed change in the Pakistan resident status from three months to six months (preferably nine months).
This adjustment will certainly encourage the diaspora to look towards Pakistan as a preferred investment opportunity.
It is also proposed to remove the requirements of no objection certificate, for American citizens of Pakistan origin to invest, set up, and operate business in Pakistan.
Any Pakistan origin citizen should be able to select his field of business just like a local Pakistan citizen.
As a reference today, aviation, security, operating in cantonment zones, port related activities have a requirement of NOC.
To develop tourism and encourage large resort operators to invest, the government must redress the civil aviation rules and encourage foreign-registered aircraft to operate in Pakistan and set up green fields/private landing strips to develop this industry.
Due to continuous sugar crises in the year 2020 and anticipation of further shortage in 2021, leading to frequent crackdowns by the government on the already-procured sugar from local suppliers, the following is suggested to cater to the industrial need of sugar, the ABC said.
The government should allow sugar import for beverage industry, duty and tax free throughout the year by making it part of the Federal Budget 2021-2022. However, the government should not ban sugar procurement from local sugar mills for industries.
According to the ABC, the proposed removal of tax holiday on exports of IT and IT-enabled services in the finance bill demonstrates inconsistency of government policies and large organisations will find it very difficult to make any long-term investments, if they believe that the GoP is not going to be consistent in its policies for the technology sector.
The tax holiday is a key and only incentive available to the IT and IT-enabled exports industry right now.
It enables the industry to compete with other countries who operate in the same space, ie, Philippines, Poland, India, Egypt etc.
The removal of this exemption will result in increase in cost and will have a direct impact on revenue generation capabilities as well as new business.
The proposed tax credit scheme is a complex process which negates the Prime Minister’s vision to improve ease of doing business in the country.
It will result in tax officers interpreting on a case-by-case basis, more paperwork and eventually higher cost for companies, which is extremely detrimental.
This will discourage global tech companies with offices in Pakistan to bring their money to the country to avoid being taxed, hence, having a direct impact on export numbers as well as remittances, the ABC proposed.
Through Finance Act, 2019, the government has introduced refund bonds for the settlement of long outstanding income tax refunds.
These refunds bonds have maturity of three years with 10 percent simple interest per annum payable at maturity. However, it has been observed, despite specific directions in the Income Tax Ordinance 2001, these bonds are neither being traded freely in the market nor being discounted by the banks mainly due to low interest versus current prevailing discount rate.
It is recommended to amend current fixed interest rate to floating interest rate linked with the KIBOR.
It is proposed that the issuance of refund bond at KIBOR would make it more attractive for taxpayers.
As it will provide breathing space to industry in form of liquidity and at the same time will resolve government issue of encashment of accumulated refunds for last five year. The ABC has also proposed that the payment of sales tax should be applicable on realisation of proceeds instead of issuance of sales tax invoice.
Sales tax is a government levy, which is collected by the service provider from the service recipient and deposited in the government treasury. In case of IT services, generally the payment against invoices is made after a long time.
It becomes very difficult for the entities to make payment of sales tax from its own sources prior to its collection from the customers to whom sales tax was charged.
The payment of sales tax from own funds creates liquidity problem for the entities, which needs to be addressed.
Copyright Business Recorder, 2021