Author: Hamza Shahnawaz

KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has suggested the authorities to revamp withholding tax regime in order to facilitate compliant taxpayers.

The OICCI in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR) recommended revamping of withholding tax regime, which is one of the key irritants for compliant taxpayers.

READ MORE: FBR proposed to reduce minimum tax rate to 0.25%

In line with the recommendations, the withholding tax regime has been subject to changes, the rationalization of withholding tax on imports and discriminating withholding tax on the basis of status of the payee is a good step towards rationalization of regime. However, there is still large room for improvement. The impact of the withholding tax regime on “Ease of Doing Business” for the large taxpayers is still very significant.

READ MORE: Foreign investors seek reduction in corporate tax rate

WHT regime should be revamped and reduced from existing over twenty-six to five rates only for filers.

Withholding tax should be applicable on inactive taxpayers only, or alternatively:

a) Withholding tax rates applicable on services is 8 per cent minimum tax regardless of the actual taxable income of the service provider. The nature of this tax effectively becomes indirect tax and increases the cost of doing business for service providers, hence, tax on services should be made adjustable.

READ MORE: Tax rates key element to attract foreign direct investment

b) Withholding tax deduction under section 153 (1)(a) of Income Tax Ordinance, 2001 which is currently considered as minimum tax for all the suppliers (except manufacturers and listed companies) should be made adjustable at least for corporates appearing in active taxpayers’ list.

Through Finance Act 2021 under section 165 of Income Tax Ordinance, 2001, requirement of filing reconciliation between annual withholding statement and audited accounts is introduced. It has resulted in additional compliance burden on active taxpayers and should be abolished.

Companies appearing in Active Taxpayers List (ATL) and obtained exemption certificate by discharge of full year tax liability in advance should be dispensed with requirements to obtain separate withholding tax exemption certificates under sections 151, 234, 235, 236, 236G and 236H.

READ MORE: KTBA recommends separate tax fraud proceedings

Payments to non-residents cannot be processed without obtaining exemption certificate from Commissioner (within 30 days of request). To facilitate timely payments the period of 30 days under 152(5A) shall be curtailed to 15 days and in the absence of any confirmation within 15 days request shall be deemed to approved.

The following clarification to be inserted after clause 153(7)(iii), to provide tax neutrality for assets financed by Islamic banking of conventional vis- a vis conventional banks.

READ MORE: FBR urged to remove irritants in sales tax refund

“For the removal of doubt, it is clarified that any goods delivered under an Islamic mode of financing by a bank or financial institution approved by the State Bank of Pakistan or the Securities Exchange Commission of Pakistan, shall not be considered as sale of goods for the purpose of this section.”

KARACHI: Federal Board of Revenue (FBR) has been proposed to reduce the general rate of minimum tax to 0.25 per cent.

The Overseas Investor Chamber of Commerce and Industry (OICCI) in its proposals for budget 2022/2023 advised the FBR to review minimum tax regime (MTR) / abolish alternative corporate tax (ACT) under Section 113 and 113C of Income Tax Ordinance, 2001.

READ MORE: Foreign investors seek reduction in corporate tax rate

The OICCI recommended that the general rate of Minimum Tax under section 113 of ITO 2001 should be reduced to 0.25 per cent.

For businesses dealing in sectors with high turnover and low margins, (eg. Oil Marketing/ Refineries/ LNG Terminal Operators, large chemical companies, authorized dealers of local vehicle manufacturers, distributors, and traders, including large trading houses), this rate should be applicable on gross profits instead of turnover.

READ MORE: Tax rates key element to attract foreign direct investment

All streams of income including income of commercial importers should be taxed under the normal tax regime. Special tax regimes should only be restricted to non-corporate or in-active taxpayers.

Alternative Corporate Tax under section 113C should be abolished in presence of Minimum Tax under section 113.

READ MORE: KTBA recommends separate tax fraud proceedings

The OICCI earlier proposed that the FBR should continue the previously announced policy to annually reduce the tax rate from 29 per cent to eventually to rate of 25 per cent, including banking companies.

The corporate tax rate in Pakistan, at 29 per cent is higher than most of the regional countries, as can be noted from the table here.

Companies are required to pay various taxes in addition of income tax i.e., WWF (2 per cent), WPPF (5 per cent), Stamp Duty, Infra structure Cess (1.2 per cent) etc. which ultimately result in effective tax rate of around 35 per cent to 45 per cent which is far greater than effective tax rates of other countries in the region.

READ MORE: FBR urged to remove irritants in sales tax refund

KARACHI: The Federal Board of Revenue (FBR) has been suggested to gradually reduce the corporate tax rate from existing 29 per cent to 25 per cent.

Overseas Investors Chamber of Commerce and Industry (OICCI), a representative body of foreign investors operating in Pakistan, in its proposals for budget 2022/2023 proposed that the FBR should continue the previously announced policy to annually reduce the tax rate from 29 per cent to eventually to rate of 25 per cent, including banking companies.

READ MORE: Tax rates key element to attract foreign direct investment

The corporate tax rate in Pakistan, at 29 per cent is higher than most of the regional countries, as can be noted from the table here.

Companies are required to pay various taxes in addition of income tax i.e., WWF (2 per cent), WPPF (5 per cent), Stamp Duty, Infra structure Cess (1.2 per cent) etc. which ultimately result in effective tax rate of around 35 per cent to 45 per cent which is far greater than effective tax rates of other countries in the region.

READ MORE: KTBA recommends separate tax fraud proceedings

Earlier, the OICCI informed the FBR that the tax rates are key element for any prospective investors, including foreign investors and key influencers in attracting foreign direct investment (FDI).

It said that the tax environment and tax rates are key consideration for any prospective investors, including foreign investors and amongst the key influencers in attracting FDI into a country.

The OICCI, the representative body of the foreign investors operating in Pakistan, submitted the following proposals for budget 2022/2023:

Simplify the complex system of determining the corporate tax liability by:

a. Abolishing ACT (Alternative Corporate Tax);

READ MORE: FBR urged to remove irritants in sales tax refund

b. Revamping the MTR (Minimum Tax Regime)

c. Doing away with undue recurring audit/ examinations/ reviews and recovery proceedings.

d. A number of Ease of Doing Business (EODB) and simplification of tax paying process issues can be addressed by the introduction of:

i. Simplifying the procedures and forms for filing the sales tax and income tax return.

READ MORE: Unified sales tax law for all tax authorities sought

ii. One form for reporting all the tax liability in the country, including for FBR, and provincial revenue authorities, with efficient inter-revenue authorities’ coordination. Single Sales Tax return has not been fully implemented.

KARACHI: Tax rates are key element for any prospective investors, including foreign investors and key influencers in attracting foreign direct investment (FDI).

Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2022/2023 sent to Federal Board of Revenue (FBR) said that the tax environment and tax rates are key consideration for any prospective investors, including foreign investors and amongst the key influencers in attracting FDI into a country.

READ MORE: KTBA recommends separate tax fraud proceedings

The OICCI, the representative body of the foreign investors operating in Pakistan, submitted the following proposals for budget 2022/2023:

Simplify the complex system of determining the corporate tax liability by:

a. Abolishing ACT (Alternative Corporate Tax);

b. Revamping the MTR (Minimum Tax Regime)

c. Doing away with undue recurring audit/ examinations/ reviews and recovery proceedings.

d. A number of Ease of Doing Business (EODB) and simplification of tax paying process issues can be addressed by the introduction of:

READ MORE: FBR urged to remove irritants in sales tax refund

i. Simplifying the procedures and forms for filing the sales tax and income tax return.

ii. One form for reporting all the tax liability in the country, including for FBR, and provincial revenue authorities, with efficient inter-revenue authorities’ coordination. Single Sales Tax return has not been fully implemented.

Tax policies should be predictable, transparent, and consistent. The policies should be implemented for long term to facilitate and protect longer term investment plans of local and foreign investors. No new taxes levied during the year except removing harsh anomalies – no supplementary budgetary measures.

The withholding tax regime continues to be a key irritant for most taxpayers, especially the manufacturing and services sector, and negatively impacts EODB.

READ MORE: Unified sales tax law for all tax authorities sought

Tax compliant sector provides FBR with information of registered/unregistered businesses, which FBR should use as a tool for broadening tax net. However, FBR unfairly penalizes these commercial organization by disallowing their legitimate expenses and input Sales tax through measures like those covered u/s 21(q) of Income Tax Ordinance, 23(1) and 8(1)(h) & (J) of Sales Tax Act.

Revenue Targets for field formations should be in line with the business growth trends. Unrealistic targets leads to harassment of compliant tax payers.

READ MORE: Proposals for recovery of sales tax on bad debts

To encourage investment in manufacturing facilities, incentives provided previously through various “tax credits” under section 65, should be restored.

OICCI will continue to emphasize on value creation through transparent and strong enforcement measures designed to facilitate compliant taxpayers and punish tax evaders. Furthermore, the value addition of our members should not only be measured from tax collection basis but also on the basis of creating livelihoods, promoting sustainable business model and supporting a tax compliant echo system.