KARACHI: Federal Board of Revenue (FBR) has been urged to gradually reduce the corporate tax rate to 25 percent by tax year 2023.
Overseas Investors Chamber of Commerce and Industry (OICCI) in its tax proposals for budget 2020/2021 recommended consolidation of all federal taxes in one lump sum.
The government previously announced a policy for gradual decrease in corporate tax rate to bring it down to 25 percent by Tax Year 2023. However in the 2019 Finance Act the rate was frozen at 29 percent.
The tax system has become cumbersome and inefficient due to a number of parallel taxes. In addition to direct corporate taxes, companies also pay other levies like the Workers Profit Participation Fund (WPPF) at 5 percent, Workers Welfare Fund (WWF) at 2 percent on their profits, thus the effective tax rate goes up significantly.
If other taxes like the provincial infrastructure taxes in Sindh and Punjab, stamp duty on Purchase Orders and contracts, together with many other local levies are added, overall tax burden goes up to about 40 percent of profits, which is a significant tax burden with consequential increase in cost of doing business.
The OICCI recommended to consolidate all federal taxes – Income Tax, and levies like WWF, WPPF in one lump sum so as to make the system more efficient and business friendly.
Further, continue the previously announced policy to annually revise the tax rate to eventually align with the average Regional Corporate rate of 25 percent by FY 2023.