Pakistan Business Council (PBC) has proposed discontinuation of the permanent amnesty schemes; cap on explained remittances beyond a threshold and advance tax collection to discourage 'whitening' in upcoming budget (2017-18). According to the budget proposals of PBC for 2017-18, PBC strongly objects to any tax amnesty schemes or waivers in customs or other duties/levies on smuggled goods as the PBC believes such moves on the part of the government will penalize the formal taxpaying sector.
PBC proposed that in order to reduce cost of doing business of registered person and to promote Registration, Sales Tax Withholding (STWH) rules may be rescinded or amended to make these applicable to payment to unregistered person only. The current tax policy is leading to a reduction in investible surpluses for the corporate sector. Frequent changes in the tax laws, eg, the introduction of measures such as Super Tax, tax on undistributed reserves, Alternate Corporate Tax (ACT) and the refusal to carry forward losses under the Minimum Tax Regime may in the short-term help shore up the FBR's collections. These however in the long-run will only lead to a reduction in the FBR's collections as corporate review their investment plans. In addition the arbitrary & non-transparent implementation of tax laws by FBR functionaries in their zeal to achieve unrealistic revenue targets is severely impacting viability of the formal sector. While the PBC appreciates some of the measures taken by the Finance Minister such as bringing in the concept of filers vs. non-filers a lot more needs to be done to expand the tax base. The existing taxpayers are being subjected to what can only be defined as "tax discrimination", it said.
Pakistan's formal taxpaying sector needs to be supported to allow it to gain scale and hence to become competitive. Tax policy therefore needs to encourage the development of scale as opposed to viewing big business in a negative framework. In the absence of a large base of taxpayers, the formal and documented sector will in the foreseeable future continue to be the FBR's main source of revenue, it is therefore important that this sector be allowed to grow and tax policy and tax administration encourage this growth.
The 2016-17 budget offers the government an opportunity to finally address the structural weaknesses of the economy. Tax implementation based on a policy of "zero tolerance" needs to focus on increasing documentation of the economy and widening of the tax base, this needs to be priority number 1 of the FBR. The current strategy of "permanent and announced tax amnesties" should be "permanently" done away with and replaced with better enforcement through increased use of technology and administrative reforms in the FBR.
The PBC has specifically recommended that the FBR tap into its database for individuals and companies whose income & sales tax withholding has been done by withholding agents and who as per the law have uploaded this data on the FBR's servers. It has also called for doing away with the presumptive tax regime and in the interim period to treat presumptive tax as a minimum tax. The PBC in its letter to the Finance Minister has demanded that taxpayers should not be subject to repeated audits and that trust needs to be developed between the taxpayers and the tax department.
The PBC has proposed that the real estate sector be brought in the tax net and conditions be created to forcefully unlock the huge potential of this sector to allow it to contribute to the exchequer. The plight of the withholding tax agents has also been highlighted with the request that some compensation be provided to the withholding tax agents who in affect have been converted into the tax collection arm of the FBR.
The PBC has noted with concern the steady deterioration in competitiveness of Pakistan's manufacturing sector especially pointed out to the loss of domestic markets for Pakistani companies. The PBC has suggested a moratorium on the signing of new trade agreements and a review of the existing ones with the aim to rectifying the shortcomings; these in the view of the PBC have led to dumping of cheap products. Smuggling, massive under-invoicing and misuse of the Afghan Transit Trade have also been identified as major causes of the erosion of competitiveness of domestic manufacturing. The Council suggested that import values be determined in consultation with industry and original brand owners.
The PBC has also called on the government to allow companies to grow in size and become more competitive globally by not penalising capital accumulation. On declining exports the PBC has called for a long-term national export vision which has buy-in from all stakeholders including provincial governments, implementation of which is held accountable to the Prime Minister. In the interim the PBC has recommended that the government clear all refunds since these are impacting cash flows. Since Pakistani exporters continue to have higher input costs as opposed to those faced by competitors, the PBC has suggested a rebate of up to 5% depending on level of value addition.
The PBC has called for ensuring that Pakistani industry fully benefits from the CPEC opportunity. It has called for a determined effort on the part of the government to relocate at least 1.0 million out of the 8.0 million manufacturing jobs that China is planning to exit in the coming decade.
The specific recommendations of the PBC revealed that the Minimum Turnover Tax revert to 0.5 percent and in the interest of tax equity, corporates in the Service Sector be subject to the same rules as applicable to other corporates. This will help companies to better manage liquidity and also allow investments in the services sector.
Business/investment decisions were made on the assumption that tax incidence will be based on taxable income or minimum tax on turnover. Taxpayers made investment decisions resulting in adjustable tax depreciation against subsequent years' tax liability as per prevalent law. In addition the current regime will discourage/penalize investment in the manufacturing sector, it added.
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