ISLAMABAD, May 3: The government is considering a proposal to cut corporate tax by 10 per cent in the budget for 2005-06 to help avoid the burden of taxes on public and private limited companies. Official sources told Dawn that the present corporate tax for public limited companies has been proposed to be cut from 35 per cent, including surcharge, to 25 per cent in the next budget.

Similarly, the present 39 per cent corporate tax on private limited companies has been proposed to be reduced to 30 per cent in the budget for 2005-06. The Board of Investment (BoI) has formulated a number of budget proposals while discussing them with the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) and other concerned government agencies.

The present taxation structure of the country leads to disintegration of the companies and people prefer to opt for informal sector than corporate sector. And that was why, sources said, the BoI decided to formulate various new proposals that were now favourably being considered by the ministry of finance.

According to the details, the present 41 per cent corporate tax on banking companies has also been proposed to be reduced to 40 per cent in the new budget.

In early 1990s government announced that tax will be gradually reduced each year. However, the Finance Act 1996 deferred the reduction in corporate tax rates and since 1996 four time reduction has been done in the budget for 2001-02, 2002-03, 2003-04 and 2004-05.

The proposal has also been made to abolish or reduce to 3 per cent across the board withholding tax in the next budget. It was said that the current rates of withholding tax (6 per cent) under section 148 & 153 are high and invariably result in access payment every quarter, creating refunds thereby leading to cash flow problems for business/industry. The BoI also supported abolishing of tax on dividends.