KARACHI: Foreign investors have asked the government to fix the “anomalies” in the 2023-24 budget before its passage by parliament to ensure that tax-compliant businesses don’t get “encumbered further”.

In a letter to FBR Chairman Asim Ahmed, the representative body of multinationals operating in Pakistan called the retrospective increase in the super tax rate from four per cent to 10pc “inequitable and unfair”.

“With no terminal date, it appears the government has effectively increased the corporate tax rate from 29pc to 39pc indefinitely,” it said, demanding that the super tax be abolished altogether given that it was introduced in 2022 only as a “temporary measure”.

The Overseas Investors Chamber of Commerce and Industry (OICCI) said the proposed additional tax on income with a capped rate of 50pc — introduced for extraordinary gains arising from economic factors to be determined by the federal government for the preceding five years — is “ambiguous and unclear”.

“It has the potential to be misused due to the term ‘unexpected income, profits and gains’ not being clearly defined. Moreover, the retrospective implementation for the last five tax years and with no accommodation for such losses appear to be unjust and hindering businesses,” it said, warning the FBR chairman of a deluge of litigation if the additional tax gets a parliamentary nod.

With respect to the withholding tax rates on the sale of goods and services, which have been increased in all categories by one percentage point, the OICCI proposed that the entire withholding tax regime be revamped.

“We recommend that the withholding tax rate structure should be simplified, and all withholding tax rates should be adjustable,” it said, demanding that the rate for compliant taxpayers be lowered.

The OICCI noted that some of the proposed tax measures will hurt the efforts at broadening the tax base. For example, it recommended that the requirement of CNIC on retail transactions above a certain threshold be reintroduced in addition to making the point-of-sale system mandatory for sales tax and its integration with the traders’ income tax returns.

On the contrary, the proposed exclusion of retailers conducting business in shops measuring a specified covered area — 2,000 sq ft or more for furniture retailers and 1,000 sq ft or more for other retailers — and jewellers from the definition of Tier-1 retailer is against the concept of the broadening of tax base.

Similarly, the representative chamber of multinationals took exception to the immunity on foreign remittances proposed in the budget.

The commissioner is empowered to probe into the sources of any unexplai­ned investment and assets and, in the case of unsatisfactory explanations, such amount is added to the income of the taxpayer and taxed accordingly. But such a probe cannot be made into the remitta­nces received from abroad through permissible channels. Up to 2017-18, there was no cap on such remittances. However, the same was introduced at Rs10 million per year and reduced further to Rs5m in subsequent years.

The latest finance bill proposed that the limit be enhanced to the equivalent of $100,000 per year. “This immunity is prone to misuse and, hence, should be removed,” it said.

Published in Dawn, June 24th, 2023