KARACHI: Multina­tional companies have warned that the government move in the budget 2024-25, which proposed 25 per cent disallowance of sales promotion and advertisement expenses, could further weaken the investors’ interest and undermine efforts to attract foreign direct investment.

In a letter to the Pakistan Broadcasters Association, the American Business Council (ABC), a platform of multinational companies and US businesses operating in Pakistan, voiced serious concerns over this proposal.

It said that “specifically, we are concerned about the 25 per cent disallowance of sales promotion and advertisement expenses where the taxpayer has claimed royalty expenses under arrangements with associated concerns on certain intangibles”.

While appreciating the government’s efforts to enhance fiscal responsibility and tax compliances, the ABC, however, claimed that the proposed disallowance would negatively impact both multinational corporations and the broader economic environment.

“Multinational corporations like the other local corporations, rely heavily on advertising and sales promotions to establish and maintain their market presence,” it pointed out. “These activities are crucial for brand recognition and competitiveness, especially in a diverse and dynamic market like Pakistan.”

However, it added, this measure would “reduce the competitiveness of MNCs’ in the market and will also result in diminishing re­­turns, which are already affected by the currency devaluation. Such a scenario will further weaken investor interest in the country, undermining efforts to attract foreign direct investments”.

The ABC said that if MNCs started rationalising or reducing their media spends due to this proposal, it would have serious consequences on the media and advertising industry’s health.

Published in Dawn, June 23rd, 2024