Aurangzeb Assures PBC of Addressing Budget Concerns

Aurangzeb Assures PBC of Addressing Budget Concerns

Islamabad, June 24, 2024 – Federal Minister for Finance and Revenue, Muhammad Aurangzeb, assured the Pakistan Business Council (PBC) on Monday that their recommendations would be considered in the finalization of the 2024-25 budget.

This statement came during a meeting held in Islamabad where a PBC delegation led by Chairman Shabbir Diwan discussed their concerns and suggestions regarding the budget proposals.

The meeting was also attended by the Minister of State for Finance and Revenue, Ali Pervez Malik, and Chairman of the Federal Board of Revenue (FBR), Malik Amjed Zubair Tiwana. The PBC delegation expressed appreciation for the government’s ongoing efforts and shared their insights and specific tax proposals for the upcoming fiscal year.

Minister Aurangzeb thanked the PBC for their constructive feedback and highlighted the FBR’s ongoing initiatives to broaden the tax base and bring more retailers into the tax net. He emphasized that the final budget decisions would be made through mutual consultation to ensure favorable outcomes for both the public and the business community.

PBC’s Concerns and Recommendations

Earlier, on June 18, 2024, the PBC had sent a detailed letter to the finance minister outlining their concerns. The letter acknowledged the government’s challenges in preparing the federal budget and appreciated the efforts to secure the next IMF program, which is seen as crucial for economic stability. The PBC praised the direction of inflation and policy rates and welcomed the Prime Minister’s announcement on reducing power tariffs for industry.

However, the PBC expressed disappointment over the budget proposals’ impact on the formal, tax-paying sector of the economy. They stressed that targeting a sharp increase in the tax-to-GDP ratio without creating equitable and sustainable means of generating taxable income, coupled with a lack of meaningful reduction in government expenditure, would unfairly burden existing taxpayers.

Key Proposals from PBC

The PBC highlighted several major recommendations aimed at reducing the tax burden on the formal sector and promoting scale and competitiveness. These included:

• Phasing out of the Super Tax, starting with exports and dividends.

• Withdrawing double taxation on inter-corporate dividends and restoring group taxation as enacted in the Finance Act of 2007/08.

• Gradually reducing the corporate tax rate to align with emerging markets.

• Addressing brain drain and capital flight from the country.

• Reducing the impact of the 1.25% minimum turnover tax on loss-making companies by lowering the rate and allowing adjustments over previous and future years.

• Addressing anomalies in minimum tax on turnover for businesses in Special Economic Zones (SEZs), including reducing the tax on their dividends to 15%.

The PBC also urged the government to provide a roadmap to attract and retain investment, warning that the current budget proposals could discourage both foreign and local investment, particularly in the export sector.

Specific Areas of Concern

Exports: The PBC stressed the importance of exports for balancing the external account and expressed concern over budget proposals that could negatively impact this sector. They argued against doubling the current 1% tax on export proceeds and switching exporters to a 39% corporate plus Super Tax rate from the current Final Tax Regime (FTR). This would place Pakistani exporters at a disadvantage compared to competitors in Bangladesh, Vietnam, and other countries.

GST on Tier-One POS Registered Outlets: The PBC recommended maintaining the reduced GST rate of 15% for tier-one POS registered textiles and leather outlets to encourage documentation and compliance.

Level Playing Field for the Formal Sector: Several budget proposals affecting the formal manufacturing sector were flagged for review, including:

• Moving zero-rated packed milk and related products to an 18% GST rate, which could undermine formal sector growth and encourage informal market practices.

• Introducing a Rs. 15/Kg FED levy on sugar supplies to manufacturers of biscuits, candies, and soft drinks, affecting their competitiveness.

• Allowing reduced sales tax rates on imports for businesses in FATA/PATA, potentially disadvantaging local manufacturers.

Recycling Industry: The PBC warned that new tax withholding requirements for the recycling industry could hinder its development and competitiveness.

Sales Tax on Local Inputs for Exports: The proposed withdrawal of sales tax zero-rating under the Export Facilitation Scheme on local inputs to exporters was deemed regressive, with the PBC advocating for the current position to be maintained to support domestic manufacturers.

Tax on Salaried Employees: The PBC highlighted concerns over the proposed changes in tax slab rates, which could exacerbate brain drain and transition of professionals to the informal sector.

Other Anomalies and Concerns: The PBC called for rectifying anomalies in the taxation of gains from the sale of private company shares, disallowance of certain sales promotion and advertising costs, and the proposed withdrawal of exemption certificate issuance powers from the Commissioner.

The meeting concluded with Minister Aurangzeb assuring the PBC delegation that their recommendations would be taken into serious consideration as the government finalizes the budget for 2024-25. He reiterated the government’s commitment to fostering a conducive business environment through collaborative and consultative decision-making processes.