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‘Budget offers no concrete proposals to widen tax base’

KARACHI: Pakistan Business Council (PBC) has said the decision to retain super tax, tax inter-corporate dividends, enhancing tax rate on services, disallowing set off of GST paid to provinces and recovering corporate tax in advance will all add to burden of the existing taxpayers.

There are a number of other anomalies that need to be removed from the budget proposals, PBC Chief Executive Ehsan A. Malik said in a letter sent to Federal Finance Minister Ishaq Dar.

He said opportunity to accelerate the documentation of the economy does not appear to have been fully availed. He lamented the growing reliance on a narrow set of existing taxpayers for funding the revenue side of the budget.

He said the budget proposal to subject non-filers to higher rates of withholding taxes may meet short-term cash flow objectives but there are no concrete proposals to widen the tax base. Withholding taxes are eventually passed on to consumers and the formal sector, thus raising the cost of living and doing business.

Presently gross receipts from services rendered and construction contracts executed outside Pakistan are taxed at 1pc of the amount remitted. The budget proposes to increase this to 3.5 to 4pc for companies and 3.75pc for others. It needs to be reconsidered.

He urged the government that the rate of WHT on FMCG distributors should be reduced to 80pc of the basic rate of 4pc ie to 0.8pc.

He said it is now proposed that for the computation of income for the purpose of levy of super tax, depreciation and business loss shall not be taken into account.

In the wake of new measures taken on group taxation, he said the amendments proposed in Finance Bill 2016 will hamper the confidence of large industrial groups and discourage group formation.

This would cause drastic changes in investment strategies and dis-incentivise investment due to dilution of profit from the holding company. He urged the finance minister to withdraw proposed amendments in the Finance Bill.