Joint meeting of OICCI, PBC and ABC with Federal Minister for Finance and Revenue, Mr. Shaukat Tarin

Business News English

Karachi, May 26, 2021 (PPI-OT): Federal Minister for Finance and Revenue, Mr. Shaukat Tarin, chaired a consultative meeting with senior representatives of Overseas Investors Chamber of Commerce and Industry (OICCI), Pakistan Business Council and American Business Council, (combination of virtual/in person at the Finance Division) on May 24, 2021. Adviser to the PM on Commerce Mr Abdul Razzak Dawood, SAPM on Revenue Dr. Waqar Masood Khan, Chairman FBR Mr Asim Ahmad and other senior officers participated in the meeting. The participants included OICCI President Irfan Siddiqui, MC members, President and CEO PBC and President and CEO of ABC, as well as some taxation Subcommittee members of the three chambers.

The Finance Minister welcomed the participants and expressed his appreciation of the efforts of OICCI/PBC/ABC for putting forward proposals for a growth-oriented and business-friendly Budget for FY 2021-22. He assured the participants that the upcoming Budget being compiled envisages maximum relief to the common man and that the Government will come up with innovative out-of-the-box alternatives to achieve the revenue targets, by providing incentives and facilities, besides broadening the tax base rather than levying new taxes. He also unequivocally stated that there will be no regressive taxation and stern action will be taken against tax evaders including possibility of sending the big evaders to jail.

He also informed that the Government has identified 12 sectors, under the banner of Economic Advisory Council (EAC), to formulate short, medium and long term strategies to achieve an inclusive sustainable economic growth and social development with special focus on agriculture, housing, exports and revenue mobilization.

The discussion on the taxation proposals started with the common OICCI-PBC-ABC taxation proposals which were presented by the Ehsan Malik CEO of PBC. M. Abdul Aleem CE/Secretary General of OICCI and Asif Peer President of ABC followed by the specific ABC/OICCI/PBC proposals. The participants also shared some comments/rationales, for their respective proposals, for better understanding of the group. The key proposals are mentioned below:

OICCI MC Member Mehmet Celepoglu emphasized the need to do away with the minimum tax regime citing his company example which suffered a tax of over 80% of the profit on account of the minimum tax on turnover as opposed to the current corporate tax rate of 29%.

OICCI President Irfan Siddiqui requested for a separate meeting with the Finance Minister to discuss matters related to expanding the scope of Islamic Banking. The FM readily agreed and mentioned Islamic banking has growth in last few years has been significant and he would be glad to support further expansion of Islamic banking.

The Finance Minister directed to constitute a Consultative Committee comprising of representatives of PBC, OICCI and FBR to workout proposals with mutual consultation on regular basis. On the request of M. Abdul Aleem, he also agreed to revive the Joint OICCI-LTU meetings separately for Income Tax and Custom Duty, separately in Karachi, Lahore and Islamabad. As per previous practice, these joint groups will provide a forum for foreign investors’, to raise their issues/concerns, and its timely resolution. M. Abdul Aleem emphasized that such regular interactions will be significant in building confidence of the foreign investors, and in attracting additional FDI in the country.

In his concluding remarks, the Finance Minister stated that the suggestions presented during the meetings for Budget preparation would be accorded due consideration. He also assured to have a regular interaction with business chambers and affirmed that all key stakeholders would be taken on board before making important economic decisions.

Joint Recommendations:

1. Tax profit not turnover

Minimum Turnover Tax at 1.5% is high and unrealistic. For the services sector it is even higher – 8% (with some at 3%) Minimum Turnover Tax be progressively reduced and replaced with Normal Tax Regime, including for companies engaged in the services sector. Listed companies and SEZ entities be exempt from this tax. Minimum tax on low margin businesses such as chemicals, oil and distributors be reduced to 0.2%. Minimum tax be fully adjustable.

2. Release cash flow

Input adjustment is limited to 90% of Output Tax – Exempt tax filers from Section 8B of STA 1990

Tax refunds are not inter-adjustable – Allow inter-adjustment of income and sales tax refunds

3. Incentivize investment in manufacturing

Sections 65B, 65D and 65E – Section 65B be restored and 65D and 65E be extended till 2025.

Imported plant and spares are subject to sales and advance tax – Exempt imported plant, machinery and spares from GST and Advance Tax.

4. Reduce complexity and make it easier to do business

High number and complexity of withholding taxes – Reduce number of WHTs on filers to maximum 10 and abolish the Final Tax Regime

Multiple tax collection authorities operate in silos leading to litigation and complex tax regime – FBR and provincial tax authorities need to agree on respective domains and on a common tax collection authority

5. Make Pakistan an attractive destination for investment

Corporate Tax Rate at 29% is high as compared to peer countries – One Income Tax rate for all corporates including banks. The rate current 29% rate needs to be reduced by 1% per annum over the next 5 years

6. Control evasion

Massive under-invoicing by commercial importers – Electronic Data Interchange with major trading partners to reduce under invoicing and misdeclaration of imports

Rampant smuggling and illicit trade – Illicit trade in oil, cigarettes, Tea and FMCG products should be curbed through effective enforcement

Misuse of the Afghan Transit Treaty – Agree quantitative limits; advance collection of duties and GST

Misuse of ‘manufacturing’ status by commercial importers – Verify through electricity and gas usage

7. Accelerate formalization and broadening of the tax base

Incentives for dealing with registered persons – Section 65A should be restored. Also, Section 65AA should be introduced to encourage purchases from registered persons.

Penalties for businesses not being tax filers – Levy higher advance tax on utility bills of businesses above a certain monthly limit

GST on goods at 17% for a poorly documented economy incentivizes evasion. This creates an unlevel playing field for the formal sector – Reduce the GST gradually over five years to 12%

OICCI Specific Proposals:

8. Bring down the cost of essentials

Fiscal policy raises the cost of essentials

Zero rate medicines and dairy for GST.

Have uniform Advance tax on all LNG imports.

Abolish 12.5% WHT on telecom services to make internet more affordable.

9. Promotion of Shariah

Compliance under clause 18B, Part-II of 2nd Schedule and rule 231H of IT Rules, 2002 are impractical to implement. FBR laws be aligned with SECP Shariah regulations.

OICCI MC Member Mehmet Celepoglu emphasized the need to do away with the minimum tax regime citing his company example which suffered a tax of over 80% of the profit on account of the minimum tax on turnover as opposed to the current corporate tax rate of 29%.

OICCI President Irfan Siddiqui requested for a separate meeting with the Finance Minister to discuss matters related to expanding the scope of Islamic Banking. The FM readily agreed and mentioned Islamic banking has growth in last few years has been significant and he would be glad to support further expansion of Islamic banking.

The Finance Minister directed to constitute a Consultative Committee comprising of representatives of PBC, OICCI and FBR to workout proposals with mutual consultation on regular basis. On the request of M. Abdul Aleem, he also agreed to revive the Joint OICCI-LTU meetings separately for Income Tax and Custom Duty, separately in Karachi, Lahore and Islamabad. As per previous practice, these joint groups will provide a forum for foreign investors’, to raise their issues/concerns, and its timely resolution. M. Abdul Aleem emphasized that such regular interactions will be significant in building confidence of the foreign investors, and in attracting additional FDI in the country.

In his concluding remarks, the Finance Minister stated that the suggestions presented during the meetings for Budget preparation would be accorded due consideration. He also assured to have a regular interaction with business chambers and affirmed that all key stakeholders would be taken on board before making important economic decisions.

For more information, contact:
Overseas Investors Chamber of Commerce and Industry (OICCI)
Chamber of Commerce Building, Talpur Road, P.O. Box 4833,
Karachi – 74000, Pakistan
Tel: +92-21-32410814-5
Fax: +92-21-32427315
Email: info@oicci.org
Website: http://oicci.org/

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