BUSINESSPERSONS expect the Pakistan Muslim League-Nawaz government to sort out at least some of the issues — such as those related to higher tax burden on firms, unaffordable energy price, unpaid tax refunds and export rebates, etc — in the budget next Friday, its sixth and last before the new elections this summer.
Large corporations, including foreign companies and banks, are expecting the government to implement wide-ranging tax reforms stating abolition of three to four per cent super tax imposed, reduction in corporate income tax rate to 25pc and sales tax to 13pc in the new budget.
“We have suggested a number of proposals to cut the tax burden on companies. We understand that it won’t be possible for the government to incorporate all the suggestions in one go but the abolition of super tax on large firms and reduction in corporate income tax can prove to be the first step,” says the chief executive officer of a food company, which is member of both the Overseas Chamber of Commerce and Industry (OICCI) and the Pakistan Business Council (PBC).
He concedes that the implementation of these proposals will result in a significant loss of tax income to the government. However, he adds, it could also serve as an incentive for the country’s tax authorities to expand the narrow tax base by documenting the informal sector that remains outside the tax net so far.
‘If a favourable environment is provided we can grow this economy at more than 10pc and end unemployment and poverty.’ — Syed Nabeel Hashmi
“The solution to our fiscal woes is not in taxing the already taxed sectors of the economy. The solution lies in increasing the tax base by taxing the untaxed businesses.
“Besides, the reduced taxation will increase corporate profits and encourage companies to invest in capacity expansion and Greenfield projects that will ultimately boost the government’s tax revenues and create jobs. It will be a win-win situation for everyone,” the CEO notes, requesting anonymity.
The government had imposed a super tax in 2015/2016 for one year but has been extending it ever since. Moreover, the chunk of direct and indirect tax income is collected from the organised sector while a large portion of the economy operating in the shadows continues to enjoy a virtually a tax-free status.
A senior banker, who also did not want to be quoted because of his bank’s policy, praised the government for cutting the personal income tax rate and trebling the threshold of tax-free income to Rs1.2 million. “The corporate sector also needs such a bold decision from the government to reduce the tax burden on it.”
Pakistan Textile Exporters Association (PTEA) Chairman Shaiq Jawed wants the government to announce a combination of policies that will reduce external sector vulnerabilities in its last budget.
“The budget must focus on mitigating the balance-of-payments crisis staring us in the face,” he says. “It means we must encourage exports in order to narrow the trade deficit. And when we talk of exports, we, fortunately or unfortunately, have only textiles to raise our exports in a meaningful way in the near future,” he continues.
Pakistan’s current account deficit has gone up to $12.0bn in the first three quarters of the present fiscal year on the back of growing trade deficit of $26.2bn as the country’s exports in goods and services stand at $21.8bn and imports at $48bn.
“In our meeting with Prime Minister Shahid Khaqan Abbasi and his Advisor on Finance Miftah Ismail, we requested them to cut the cost of energy for the industry to make us competitive in the region.
“We have asked them to remove the Rs3.50 per unit surcharge that has been levied to recover line losses and electricity theft, and cut gas prices in Punjab to Rs600 (the rate at which the industry in Sindh and Khyber Pakhtunkhwa is getting gas) to help us reduce our high cost of doing business.
“It is because of higher-than-the-regional average energy prices that our products have become uncompetitive in the world. Additionally, we want the government to release the long unpaid tax refunds and export rebates as it is causing a liquidity crunch for exporters and impeding our overseas shipments,” says Shaiq Jawed.
Syed Nabeel Hashmi, who supplies automotive parts to the country’s car and tractor makers, says Pakistan is now passing through a phase where its macroeconomic indicators are reflecting difficult times.
“Yet the economy is expected to grow at an 11-year high rate of 5.7pc because of rising domestic demand. New foreign food companies are lining up to enter Pakistan; nine automobile manufacturers have announced to set up their plants, cement production capacity is being increased and so on.”
He is of the view that the government should make policies that push direct tax collection and reduce the burden of indirect taxation on businesses and individuals by restructuring the tax regime and administration.
“Taxpayer should be facilitated and not penalised. The budget should be rewarding for taxpayers and tough for those who don’t pay their share of taxes. Tariffs on raw materials should be rationalised.
“If a favourable environment is provided, the tax system reformed, raw material prices rationalised and the cost of doing business brought down, we can grow this economy at more than 10pc for many years to come and end unemployment and poverty. But then the government will have to take business decisions and not political decisions.”
Published in Dawn, The Business and Finance Weekly, April 23rd, 2018