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Foreign firms resent tax measures

Updated June 07, 2017

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LAHORE: Major foreign companies operating in Pakistan have resented several tax measures proposed in the budget for the next financial year, urging Finance Minister Ishaq Dar to “review and reverse them in the interest of encouraging foreign direct investment” (FDI) in the country.

In a letter sent to Mr Dar, Overseas Investors Chamber of Commerce and Industry (OICCI) chief executive Abdul Aleem has argued that some of the taxation measures proposed in the Finance Bill 2017-18, including a few surprises, may hamper government’s efforts to build trust for existing foreign investors and attract new FDI other than under the China-Pakistan Economic Corridor.

The chamber, which represents foreign investors in the country, said that implementing predictable, consistent and transparent economic policies was a prerequisite for attracting investment, creating jobs and growing the economy.

Irked by the continuation of ‘super tax’, which was initially imposed for one year in 2015-16 on large corporations, the OICCI pointed out that it would have serious impact on the views of the existing and potential foreign investors irrespective of the fact it is still justified or not. A fair chunk of “super tax, we understand, is collected from OICCI members whose headquarters management takes a negative view of such ad hoc measures and surprises every year”, the letter said.

The chamber also took exception to the abolition of tax credit that was introduced to encourage documentation of the economy. The credit was enhanced to 3pc during the last fiscal year and the OICCI had proposed to increase it to 5pc in its proposals for the next year’s budget. The chamber said “it is a matter of surprise that without any noticeable increase in the broadening of the tax base or documentation of the economy, this incentive has been withdrawn abruptly, which will be counterproductive and may encourage non-filers and those working against the documentation of the economy”.

The OICCI warned that the proposed 10pc tax on companies, which do not distribute 40pc of their profit as dividend, will work against capital formation in the economy required for growth and investment, and will also lead to multiple taxation on the same income. It also eliminates the option in the current law of paying dividends up to 50pc of its paid-up capital and removes the mandatory distribution subject to accumulation of 100pc reserves, it said.

The chamber termed the increase of minimum tax from 1pc to 1.25pc as harsh, especially for high turnover but low-margin businesses such as chemical companies. “If not corrected, this may substantially increase the effective tax rate beyond the corporate rate of 30pc for large manufacturing companies,” it said.

Calling upon the minister, the OICCI said: “… we are confident that our concerns (on tax proposals) will be considered seriously and duly addressed before the Finance Act 2017-18 is approved.”

Published in Dawn, June 7th, 2017