Cut corporate tax rate: EAC

ISLAMABAD, April 7: Reduction in corporate tax rate will help develop corporate culture and promote establishment of more companies against the current trend of establishing family-owned companies, the Economic Advisory Council (EAC) noted on Saturday.

However, it proposed increase in tax rate for Associations of Persons (AoPs).

The council met under the chairmanship of Finance Minister Dr Abdul Hafeez Sheikh and discussed budget proposals for 2012-13 and suggested containing of fiscal deficit by 0.5 per cent and boosting tax-to-GDP ratio to maintain the balance in expenditures in the next fiscal year.

The meeting also decided that the budget 2012-13 should ensure macroeconomic stability, promote growth and mobilise more resources for economic development.

The members also expressed concern over increased government borrowing from the central bank and it was observed that if this high level of borrowing continued the inflation may surge to 13 per cent in 2012-13.

The sub-group of the EAC on capital market recommended incentives for capital market, mutual fund and venture capital fund industry, promotion of concept of holding company, reduction in income tax slabs and allowing exemption on basic threshold of Rs350,000.

EAC Convenor Dr Hafeez Pasha informed the media after the meeting that sub-groups on agriculture, capital market, fiscal coordination between federal and provincial governments and balance of payments had submitted their recommendations.

He informed that now the chairmen of these sub-groups in next two meetings would discuss these recommendations and finalise proposals at the next EAC meeting in first week of May for formal adoption of federal budget 2012-13.

Dr Pasha said that there was consensus during the meeting that budget deficit should be reduced in 2012-13 against the final deficit sustained during 2011-12.

“Similarly, to maintain the balance between revenues and expenditure it has also been agreed that tax to GDP ratio should be increased by 0.5 per cent,” he added.

The EAC noted that though the revenue collection target seemed to be on the track but higher expenditures and a decline in non-tax revenue might lead to increase in budget deficit to 5 per cent, which is apart from the circular debt financing of around Rs380 billion.

Meanwhile, FBR Chairman Mumtaz Haider Rizvi said that the collection target of Rs1,952 billion was very difficult and uphill task on the face of energy crisis and ongoing sporadic incident of violence in Karachi but it was still achievable.

He said that revenue loss of around Rs20 to 25 billion was suffered during the recent law and order situation in Karachi.

The EAC was informed that during the first nine months of 2011-12, the revenue collection showed an increase of 25 per cent and if the same level was maintained the revenue target would be met.

It was also highlighted that the Ministry of Finance should engage with representatives of provincial governments to discuss about revenue mobilisation efforts at provincial level.

The committee on fiscal coordination and balance of payments in its reports stressed for improved fiscal coordination between the centre and provinces especially after the 7th NFC award as it has considerably increased provincial share in the divisible pool.

The Committee was informed that the budget is likely to be presented in the Parliament at the end of May 2012, while Finance Minister Dr Hafeez Sheikh rejected the perception that political considerations would supersede economic considerations in the budget because of approaching general elections and assured the EAC that the economic team would adhere to fiscal discipline.

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