Inside Financial Markets
Govt agrees to key PBC budgetary proposal - Inside Financial Markets

Govt agrees to key PBC budgetary proposal

– Business Recorder

The government has agreed, in principle, to a key budget proposal of the Pakistan Business Council (PBC) to restore the exemption of inter-corporate dividends to promote the formation of groups in the country.

Sources told Business Recorder, here on Tuesday that the issue was discussed during the last meeting of the PBC with the finance minister on the federal budget (2021-22).

On May 25, the PBC together with the Overseas Investors Chamber of Commerce and Industry (OICCI) and the American Business Council (ABC) met the finance minister, the Advisor to the PM on Commerce, SAPM Revenue, Chairman FBR and his team to discuss the key recommendations for the Federal Budget 2021.

The main recommendations were developed in a spirit of partnering the government on broadening the tax base, accelerating formalization of the economy, controlling evasion and under-invoicing, promoting investment, liberating cash flow of business, bringing down the cost of essentials and facilitating consolidation and scale through formation of groups. Anomalies in the current fiscal regime such as minimum tax on turnover and the complexity arising from multiple withholding and advance taxes were also discussed.

Saquib Shirazi, chairman PBC recognised that all the recommendations could not be implemented in one go, and urged the government to provide a direction through phased introduction of measures. The finance minister appreciated the collaborative and constructive spirit in which the recommendations were made, and assured his government’s full resolve to make it easier to do business.

He highlighted the measures being taken to reduce harassment and bring objectivity and independence to audits through the Institute of Chartered Accountant of Pakistan (ICAP).

He also directed the establishment of consultative bodies composed of the FBR, the PBC, the OICCI, the ABC, and the FPCCI to discuss issues related to taxation and customs.

Sources said that the chairman FBR indicated the intent to gradually reduce minimum tax on turnover starting with 0.25 percent in the forthcoming budget.

Specific rates will also be issued for low margin businesses and issues relating to the offset of minimum tax would be resolved.

The finance minister endorsed the recommendation to reduce upfront tax levies on import of plant and machinery.

The chairman FBR was supportive of inter-adjustability of income tax and sales tax refunds and payables.

The FBR would also look to remove the limit of 90 percent for input adjustment of sales tax.

However, it did not support the continuation of incentives for BMR or investment in new projects citing past misuse by some unscrupulous taxpayers.

The PBC urged the FBR to rethink this and not punish law-abiding taxpayers for the misdeeds of others.

It also recommended that the incentives could be restricted to imported plant and machinery.

The FBR assured the PBC that withholding taxes will be rationalised.

The finance minister supported a gradual reduction in both corporate tax rates as well as GST.

It was pointed out that the 17 percent sales tax rate for a poorly documented economy created incentive to evade.

Agreeing with the need to bring the GST rate down in phases to 12 percent, the finance minister shared the plans to broaden the retail tax base through POS terminals and prize schemes for customers who demand proper GST receipts.

He also warned that willful defaulters will be punished through imprisonment.

The PBC stressed the need to restore the exemption of inter-corporate dividends from cascading taxes.

This was required to promote the formation of groups, development of scale and for deepening the capital market through wider shareholding.

The finance minister supported this proposal and asked the FBR to review PBC’s proposals which were based on global precedents.

Proposals to bring down the cost of essentials such as medicines and packed dairy products by zero-rating them for sales tax were also presented.

The FBR will examine the case on its merits, they said.

The PBC and others appreciated the finance minister’s listening, understanding and collaborative attitude, and the FBR’s efforts to reduce complexity and address the flaws in the fiscal regime.

Syed Zaki Hussain

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)