ISLAMABAD, May 22: The government is considering an official proposal to reduce the rate of general sales tax (GST) from 15 per cent to 10 per cent and slash three per cent across the board corporate tax in the budget 2006-07 for encouraging the much-needed private investment in the country.
Officials told Dawn on Monday that economic ministries had proposed a significant reduction in major taxes and their recommendations were being given due weightage by the ministry of finance and the Central Board of Revenue (CBR).
The Board of Investment (BoI) has primarily advised the government to bring down the GST rate from 15 per cent to 10 per cent and abolish excise duty to avoid double taxation.
In their budget proposals submitted to the ministry of finance, the BoI officials also called for substantially reducing direct taxes, “as the present taxation structure is leading to disintegration of companies”.
The BoI believes that corporate tax rates need to be significantly reduced in the next budget. The board thinks that a gradual one per cent reduction in the corporate tax rates each year was not helping expand the corporate sector.
It was in that backdrop that the BoI proposed across the board 30 per cent corporate tax rates for public, private and banking companies against the existing 35 per cent, 37 per cent and 38 per cent rates, respectively.
“In future, corporate tax rates should be reduced gradually reaching ultimately to 25 per cent, including surcharge for public, private and banking companies.”
In the early 1990s, the government had announced that the corporate tax would be gradually reduced each year. Since 1996, a five reduction had been made in the budgets for 2001-02, 2002-03, 2003-04, 2004-05 and 2005-06.
“For the development of the corporate sector, it is essential to eliminate multiplicity of taxes,” the BoI proposed. In addition to very high corporate tax rates in the country, there were a number of other taxes levied with different names like WPPF and WWP. “These are not different from the corporate tax and, if they are to be accounted for, the total tax rates come to around 42 per cent,” the BoI calculated.
It also proposed that a zero per cent customs duty be introduced in the next budget on import of plant, machinery and equipment for priority projects of fertilisers, pesticides, hydrogen peroxide, refineries, oil and gas exploration, mining, LNG terminals, power generation, hydel, thermal (gas, diesel, furnace oil), nuclear, wind, solar, captive power generation, tourism, urban mass transit, water treatment/supply/desalination plant, automobiles, polymers, naphtha cracker and housing construction. Also for five years, a 50 per cent tax exemption for priority projects should also be given, with the provision to carry forward/ adjust the losses.
