ISLAMABAD, May 24: The Board of Investment has submitted several budget proposals, seeking lowering of several corporate sector taxes. They also contain suggestions to offer incentives to stimulate foreign investment in the industrial sector.

A BoI proposal called for reducing withholding tax to three per cent across the board, adding that its current rates were high and causing problems for distributors associated with the consumer goods industry, operating at low profit margins. The BoI believed that the higher rates invariably resulted in excess payments every quarter, creating refund problems and subsequently leading to cash flow problems for businesses and industry.

According to the BoI, the system of advance tax on the basis of gross turnover should be abolished and minimum turnover should be offered a five-year exemption or till such time the companies turned profitable and developed a tax-paying capacity, “whichever is earlier”.

“For the development of corporate sector, it is essential to eliminate multiplicity of taxes,” another BoI proposal said. “In addition to very high corporate tax rates, there are a number of other taxes levied with different names like WPPF and WWP. The BoI said that it was difficult to differentiate these taxes from other corporate taxes and if they were taken into account, the total tax rate came to around 42 per cent.

The BoI says that instead of abolishing tax on dividends, it should be reduced to five per cent.

The BoI officials called for providing an initial depreciation allowance at the rate of 90 per cent of the PME cost across the board of all sectors (on new investment only) to attract foreign direct investment. To encourage re-investment or expansion of existing projects, it proposed that the investment made for expansion and balancing, modernisation and replacement (BMR) should be made deductible under initial depreciation allowance at the rate of 50 percent of PME cost.

“The above proposals may be considered if the grant of tax holiday is not possible,” the BoI said.

The BoI maintained that people in the industry were saying that a reasonable tariff differential should be provided to local manufacturing as envisaged in the Investment Policy 1997.