Institute of Chartered Accountants of Pakistan (ICAP) has raised concerns over the current tax rates and tax regimes in the country, urging the tax authorities to revisit them in the upcoming budget for the fiscal year 2023-2024.
According to ICAP, while tax rates for corporate taxpayers have been gradually reduced, the tax administration has simultaneously implemented changes that limit the admissibility of expenditure and impose harsh assessments, thereby negating the relief provided by the reduction in tax rates.
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ICAP highlighted several negative changes made over time, including the elimination or significant reduction of initial depreciation on tangible assets, an increase in the maximum period for amortization of intangibles from 10 to 25 years, a decrease in the depreciable value of motor vehicles used for business, and restrictions on the admissibility of sales promotion and advertisements.
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Furthermore, ICAP expressed concerns about the introduction of various new tax regimes, such as massive withholding tax regime, minimum tax regimes, fixed tax regime, super tax regime, and alternate corporate tax regime. These new regimes leave fewer options for businesses to operate under the normal tax regime. ICAP argues that the Federal Board of Revenue (FBR) has been shifting towards gross income taxation and moving away from net profit taxation, seemingly following an indirect taxation agenda under the guise of direct taxation.
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To ensure smooth operations for businesses, particularly startups and multinational companies established through foreign investments, ICAP has recommended the following steps:
i. Abolish the Alternate Corporate Tax regime.
ii. Abolish the minimum tax regime based on turnover or define a maximum rate of taxation for this regime.
iii. Rationalize or eliminate the withholding tax regime, including sales tax withholding. Minimize compliance requirements and reduce the risks associated with non-compliance. The corporate sector should only be subjected to advance tax, which could even be increased in frequency from quarterly to monthly.
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iv. Remove or relax the restrictions on depreciable vehicles for business use, sales promotion, and advertisements.
v. Reduce tax rates for the non-corporate sector, which includes salaried and business individuals, SMEs, and AoPs (Association of Persons). The rates should not exceed those prescribed for small companies.
ICAP emphasizes the importance of these recommendations for fostering a conducive environment for businesses, promoting investment, and ensuring fair and balanced taxation in Pakistan.
As the budget for the fiscal year 2023-2024 approaches, stakeholders will eagerly await the government’s response to ICAP’s recommendations and the potential impact on the tax landscape in Pakistan.
