KARACHI: Multinationals operating in Pakistan have asked the government to increase the minimum taxable limit from Rs600,000 a year to Rs1.2 million to offset the impact of unprecedented inflation on individuals.

The representative body of 200-plus multinational investors from 14 sectors called the existing salary tax structure “inconsistent with the basic principle of non-discrimination” as part of its taxation proposals for the 2023-24 budget.

While the current regime imposes on an individual earning as low as Rs600,000 a year (or Rs50,000 a month) an income tax at 2.5pc, the top marginal personal income tax rate (35pc) significantly exceeds the corporate income tax rate of 29pc – a practice that’s against the International Monetary Fund’s recommendations for good tax policy.

The Overseas Investors Chamber of Commerce and Industry (OICCI) said in its proposals that the unprecedented inflationary pressure and high-interest rates have particularly hurt the net disposable income of individual salaried persons.

Since any property purchased through a bank loan contributes towards the documentation of the economy, the OICCI demanded that a tax credit for markup paid on the house loan should be allowed to compensate individuals against high-interest rates on mortgage — something that was allowed until the Finance Act 2022.

Similarly, it demanded that the tax credit for investment in mutual funds and health insurance should be restored in 2023-24.

The OICCI said the data of imports should be made public property, albeit restrictively, to ensure transparency and control under- and over-invoicing.

It demanded that the wholesale/retail trade be brought into the tax net by re-introducing the CNIC requirement on all cash transactions above Rs 50,000. A point-of-sale (POS) system should be made mandatory for sales tax, which should be integrated with the respective trader’s income tax return, it said.

As for the tax on real estate, the OICCI demanded that a POS-type integration be made mandatory for all property transactions. The holding of a national tax number be made mandatory for all property sales and purchases, it recommended.

About the service providers that operate largely out of the tax net, the OICCI recommended that doctors, private hospitals, lawyers, painters, fashion designers, property dealers, interior designers, salons and educational institutes, including private teachers and coaching centres, be “completely” brought into the tax net.

Similarly, the chamber of overseas investors demanded that agricultural income be brought under the federal government’s purview through a constitutional amendment. “The exemption to agricultural income should be withdrawn and appropriate laws should be made in coordination with the provincial governments to collect fair taxes from the agriculture sector,” it said.

Afghan transit trade

The OICCI called for revising the Afghan Transit Trade Agreement in line with the “current reality” to protect the revenue base of Pakistan.

Before the government formally engages key stakeholders like OICCI in the proposed renegotiations, the chamber said the government should at least harmonise duty and tax rates to remove the incentive for evasion.

It recommended fixing the quantitative limits for imports based on genuine Afghan needs and the size of its population. There should be a negative list of items, which are not utilised in Afghanistan, it said, noting that such imports eventually make their way into Pakistan.

The practice can be discouraged by installing vehicle trackers and scanners from the Pakistan border to the Afghanistan border.

Afghan importers should file the entry in their WeBOC system — computerised mechanism that provides end-to-end automated customs clearance of import and export goods — while the Pakistani authorities should have access to the same, the OICCI recommended.

Published in Dawn, May 23rd, 2023

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