KARACHI: The business community has expressed concern over the taxation measures proposed by the Ministry of Finance in the upcoming budget.

In a letter addressed to the chairman of the Federal Board of Revenue (FBR), a copy of which was seen by Dawn, the Pakistan Business Council (PBC) has articulated the sentiments of the corporate sector. The letter described the proposals, leaked to the media, as “retrogressive” that instead of focusing on broadening the tax base sought to further burden companies already contributing to the national exchequer.

It said that “the formal sector is already burdened with not only very high rates of taxes but also the unpaid responsibility to collect revenue on behalf of the FBR. Besides, they are harassed through repeated audits and demands for payment of tax in advance of due dates to meet arbitrary targets”.

The letter pinned down some of the specific measures which are creating disillusionment among the business community. It said raising the rate of tax on dividend income of filers to 15pc from 10pc a year earlier would discourage investment in the stock market and encourage diversion to the real estate sector which was largely untaxed.

Similarly, taxing pension and provident funds would reduce the incentive to work in the formal sector and hit retirees. Forcing companies that incur gross loss to pay tax merely because the FBR lacked the capacity to critically evaluate and ascertain profit was inequitable, the council said.

It also described the charging of alternate corporate tax in advance on accounting profit of businesses that incur a net loss as untenable.

The PBC proposed harvesting the huge data provided by the formal sector through withholding taxes and offer incentives to the formal sector to transact with filers.

It suggested that those who brazenly deal with smuggled goods in markets, such as Shah Alam in Lahore and Jodia Bazaar in Karachi should be pursued.

The council also asked the government to assure potential filers that they would not be harassed by desisting from subjecting existing taxpayers to multiple audits and demands for advance tax.

Furthermore, it urged the government to minimise discretionary powers of the FBR and institute risk-based third party audits.

It also advised against imposing taxes that discourage capital formation/investment and impact future tax revenues, and presumptive tax should be treated as minimum/advance tax and final liability should be assessed from the tax returns.

The council also believed that the free trade agreement that have significantly undermined domestic competitiveness and the tax base should be renegotiated.

Published in Dawn, May 26th, 2016