KARACHI: The Federal Board of Revenue (FBR) has been suggested to reduce the corporate tax rate to 25 per cent from existing 29 per cent in order to attract both local and foreign investments.
Karachi Tax Bar Association (KTBA) in its proposals for budget 2022/2023, suggested the FBR to bring down the corporate tax rate by amending Part 1, First Schedule of the Income Tax Ordinance, 2001.
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The tax bar said that currently corporate rate of tax in Pakistan is 29 per cent and it goes up due to Workers Welfare Fund (WWF) and Workers’ Profit Participation Fund (WPPF) up to 36 per cent which is higher than the average tax rate in Asia i.e. 21.32 per cent. The higher corporate tax rate in Pakistan has increased cost of doing business and regionally uncompetitive position.
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The KTBA proposed: “The corporate rate of tax should be decrease up to 25 per cent by gradually decreasing 1 per cent every year. This proposition was available previously under the Ordinance which was deleted through Finance Act 2019.”
Further, the tax bar also suggested that the rate of tax on small companies should also gradually be reduced to 15 per cent. Besides, Income of WPPF should be exempted from tax.
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Giving rationale, the KTBA said that the high rate of tax is encouraging tax evasion and discouraging documentation of economy and corporatization. “It dis-incentivizes foreign and local investment,” it added.
The KTBA also suggested the FBR to allow tax credit for making new investments by amending sections 65B, 65D and 65E of the Income tax Ordinance, 2001. The tax bar said sections 65B, 65D and 65E are related to tax credit for investment, newly established industrial undertaking and industrial undertaking established before July 01, 2011.
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“These are not currently available to the taxpayers for new investments,” it said. Therefor it is not encouraging new investment.
“Tax credits may be provided for making investment in fresh/ existing industrial undertakings, such as tax credit under 65B of the Ordinance which may be restored. Simultaneously, time limit U/s.s 65D and 65E may be further extended up to June 30, 2025,” the tax bar said, adding that it will promote industrialization and new investment in the country.
