ISLAMABAD, March 5: The government should consider cutting corporate tax rates to 25 per cent from 35 per cent in the upcoming budget of 2008-09 in order to attract investment for sustained industrial growth.

The suggestion among others was made by ACCA Pakistan — an association of chartered accountants — in its budget proposals for the year 2008-09 submitted to the Federal Board of Revenue (FBR).

The association in its budget proposals, a copy of which was released to the media on Wednesday, recommended that for the encouragement of sustainable business practices, 100 per cent tax deduction should be granted to industries for the relevant costs of purchasing and installing equipments, such as water treatment plants and waste disposal management systems, which help minimise waste emissions.

ACCA Pakistan also recommended tax incentives to SMEs so as to help their survival and growth rate. In this context, it is proposed that a premium status allowance (PSA) is given to SMEs. This would entitle them to a 2-year partial exemption (70 per cent of taxable income) from the payment of income tax. The exemption period would commence from the day of commencement of production.

With a view to encouraging export-driven economic growth, the association proposed tax benefits on the cost of technical training of workers in fisheries, carpets, jewellery, and handicraft sectors.

It also proposes tax holiday for the establishment of new local technical institutes. The budget proposals suggest that concession (reduced rate of tax) allowed to small companies should be extended to all small companies irrespective of their date of incorporation (present date is July 1, 2005).

Tax relief on capital equipment purchased to ensure continuity of power supply should be provided to SMEs.

Under the head of sales tax, the association proposes that the threshold for registration, which has remained at Rs5 million for many years, should be linked to the Consumer Price Index, which currently stands at 8 per cent per annum.

In order to enhance the fairness and equality of Pakistan’s tax system, capital gains arising from real estate /or shares should be taxed. It was also recommended that the FBR broadens the tax base and increase perceived fairness of the taxation system by taxing agricultural income.

As agricultural income is highly dependent on cyclical weather conditions, tax can be calculated by averaging agricultural income for two years. Keeping in pace with the FBR policy of lowering administrative costs and ensuring transparency in tax collection processes, withholding tax should be withdrawn. Sales tax and federal excise should be merged as a single ‘value-added tax’ thus abolishing capital value tax (CVT).

It is further suggested that the index linked personal allowances such as old-age allowance (60 years and above) and blind person allowance should be considered.