Mr Haroon Akhtar, Special Assistant for Revenue to the Prime Minister, accompanied by FBR Member Tax Policy Rehmatullah Wazeer, Chief Commissioner LTU 1, Karachi Mr. Syed Ayaz Mehmood and Dr Muhammad Ali Khan Chief Commissioner LTU 1, Karachi, visited the Overseas Investors Chamber of Commerce and Industry (OICCI) on Thursday, February 9, 2017 to discuss with the members, the OICCI Key Taxation Proposals and some other current issues of concern for foreign investors.
The Special Assistant and the FBR team were warmly welcomed by the OICCI Vice President Nauman Ansari and CE/Secretary General M. Abdul Aleem and over forty senior representatives of member companies.
Nauman Ansari termed the visit “timely, as the Budget exercise in the FBR is about to start and understanding the rationale behind Key Taxation Proposals of major overseas investors in the country is the right way to start the preparation of the annual budget”.
OICCI CE/Secretary General, M. Abdul Aleem, acknowledged some good achievements of the government in handling of the economy and actions to support business, trade and industry which has led to record low level of inflation, interest rates, FX rate stability, improved security situation, business opportunities on account of CPEC projects, Major energy projects underway to meet growing energy needs, Improving level of economic growth which is expected to be above 5%, good corporate results, PSX at record level and OICCI members, investing substantially on expansion and BMR. This was followed by a brief presentation highlighting results of the last OICCI sponsored Business Confidence Index survey, investors’ view about factors constraining FDI and the overall OICCI business climate expectation of 2017, where he emphasized the constant OICCI recommendation to ensure predictability, consistency and transparency in policies especially on taxation and not to compromise on policy and governance due to political considerations due to the upcoming 2018 elections.
He also recommended that the Tax Reform Commission 2016 report be judicially and transparently implemented with periodical monitoring of overall impact on:
- Tax administration: e.g., reduction in number of appeals and ad-hoc actions under revenue pressure by FBR units
- Tax payee’s morale and motivation, i.e., customer satisfaction – with no need to introduce periodical tax amnesty schemes
- Broadening of tax base with significant increase in tax filers and revenue collection
He then gave an overview of the key taxation proposals, submitted immediately after the meeting, to the FBR Chairman, which include the following specific recommendations:
- Rates of Corporate and Sales Tax to be reduced and aligned to regional countries. Super tax to be abolished.
- Rationalize Minimum Tax (MTR) Regime for large value but low margin businesses like OMCs
- Revamping Of Withholding Tax Regime
- Incentives for new investments to be made part of every budget
- Group Taxation relief to be re-introduced
- Workers Welfare Fund (WWF) & Workers Profit Participation Fund (WPPF) jurisdiction and tax deductibility clarified
- Incentive for timely filing of Tax Returns
Subsequently he also shared some of the key Sector Specific tax proposals and following structural/procedural reforms:
- Tax Policies
- The feedback of the Largest Tax Contributors should be taken before finalization of the Finance Act
- Amendments in the Finance Act should be done after providing appropriate time for incorporation in system
- Coordination between Federal and Provincial Legislations – foreign investors have invested in Pakistan and not in any particular province and therefore should not suffer from inter-governmental issues/conflict.
- Pending Income/ Sales Tax Refunds – Protracted delays in settlement of tax refunds is one of the biggest contributors in distorting the commercial image of Pakistan
- Restructuring of FBR as an independent governing body – FBR should be made an autonomous body
- Resolving disputed claims – the Federal Tax Ombudsman should be given the authority to settle all the disputed claims of taxpayers
- Structural reform in customs – review of the custom regime should be done, in consultation with brand owners
- Research and Analysis Wing - An independent ‘Research and Analysis Unit’ should be formed
- Tax Broadening and Documentation Measures – every income earner should be a registered tax payer
Mr Haroon Akhtar, thanked the Chamber for acknowledging the accomplishments of the government, and specifically the Finance Ministry and FBR for the positive steps taken toward economic improvement, documentation and broadening of tax base. He also thanked OICCI members for their efforts in compiling the Taxation proposals, which were always taken into account by the Budget makers. He also mentioned some of the positive government initiatives such as bringing 5 major sectors in zero rating, package for farmers to incentivize the agriculture sector by reducing rates for fertilizers, recent Rs 180 billion package to boost exports. He mentioned that the GDP growth rate in 2017-18 is expected to be over 5% and that the various government initiatives were a key factor in Pakistan moving towards one of the 20th largest economies according to recently released PWC report.
Mr Haroon Akhtar than gave his reactions to all the OICCI Taxation Proposals He mentioned that the increased rates for the non-filers is one of the major steps in broadening the tax base. He further opined that his team will make things more difficult for the tax evaders and non-filers and informed that there will be an increase in the tax rates for non-filers in the upcoming budget. He emphatically mentioned that the government will make no compromises for political reasons, and informed that there has been tremendous private investment in power sector and there will be an energy surplus in next two years which will then lead to more GDP growth in the coming years. He also informed that the government is in the process of signing an agreement with Switzerland on information sharing to catch tax evaders and a separate committee has been formed to recommend how to handle the off-shore money and benami transactions, through multilateral agreements.
He informed that as per the already announced tax policy the government will be reducing the corporate tax rates to 30% in the coming budget and agreed that the Super tax was a matter of issue and will be reviewed before the Budget. In respect of coordination between the Federal and provincial revenue Boards he said necessary actions are being taken in this direction and the issues relating to coordination will be resolved gradually. He mentioned that changes in Group taxation in the last Budget was due to its misuse by some companies due to which the department has a negative impression and some assurances are needed before a review is done. He informed that at the time of the 18th amendment there was an understanding that WWF and EOBI will be federal matters, which has led to ambiguity in respect of these matters. He also discussed the sectorial issues and mentioned that some special committees have been formed specifically for Pharma and tobacco etc.
Mr. Rehmatullah wazir, appreciated the OICCI proposals and mentioned that some of these are already taken up for the budget formation meeting. He agreed that the WHT regime in the country is very complex and with 67 provisions it was perhaps the most complex WHT regime in the world. He also shared his concern that this year the tax collection from corporate sector has declined from 120 to 82 billion, which could partially be due to decline of oil prices which impact petroleum companies. He also agreed that there was a need for clarity in definition of winning and prizes. He said the OICCI taxation proposals included a number of good suggestions and the Budget making team will evaluate all the recommendations and the Finance Bill is expected to include proposals related to extending the timelines of some of the incentive schemes under section 65 of the IT ordinance and giving additional credits for electronic invoicing and some other suggestions.
Other matters discussed during the question answer session included turnover tax, discrimination in treatment of crude and palm oil manufacturing, terms agreed at the time of signing respective FTAs, pharma transfer pricing and tax credits for capex on new buildings in line with tax credits for new plant and machinery
The Special Advisor for Revenue to the Prime Minister, Haroon Akhtar concluded with the comment that FBR will stay engaged with the OICCI even during the 2017-18 Budget making process to ensure that foreign investors are on board.
OICCI Vice President Nauman Ansari profoundly thanked the Special Advisor for considering all the key points of the OICCI Taxation Proposals and his promise to review all the recommendations.