ICCI President for reducing corporate tax to below 30 percent in next budget for encouraging investment

  • June 12, 2009
Corporate tax in Pakistan is one of the highest in the region which discourages investors from coming in the country and government should consider reducing it from 35 to below 30 per cent in the next budget to make it compatible with other countries in the region. This was proposed by Mian Shaukat Masud, President, Islamabad Chamber of Commerce and Industry in a statement. He said our regional competitors are not only offering lower tax rates but also better security and infrastructure facilities and these factors put Pakistan at a disadvantage while reducing corporate tax to below 30 percent could attract more investment in the country. He said a country’s tax system and its hassle free implementation are key determinates of its investment environment. But in Pakistan, the opposite is experienced as the organized sector is subject to high rates of taxes whereas the unorganized sector appears to enjoy implied amnesty and government should take measures to remove such distortions in tax system.

ICCI President stressed that government should take measures to make documentation mandatory for all sectors of the economy. He said entities that provide documentation of their transactions or deal only with organized suppliers and customers should be given 5 per cent rebate in income tax among other incentives to encourage wider adoption of this good practice. He said this exercise will create new sources of revenue for the government. He further emphasized for reducing indirect taxes as presently the effective indirect tax rate is 28 per cent (16 per cent GST + 12 per cent FED). This high level of taxation encourages a substantial part of the manufacturing base to operate in the unorganized sector. He said the overall incidence of indirect taxes needs immediate review so that possibilities and comparative advantages of evasion are reduced and minimized.

Mian Shaukat Masud said up front duties and taxes on the import of plant equipment and machinery, spare parts and raw materials, not available locally, is hampering industrial growth suppressing the export potential of industries by raising costs apart from limiting the amount of foreign direct investment. Therefore, he stressed for the need of introducing zero rated import duty in coming budget on all plant equipment and raw materials which are not locally manufactured. It will entail other benefits as well liking resulting in more foreign direct investment, local skill development and incremental revenue to the government from alternate revenue sources such as sales and corporate taxes thus offsetting the revenue lost by the government. He was of the view that if implemented, these recommendations will assist in improving the tax system in the short run and broadening of the tax base in the long run ultimately making Pakistan an investment friendly destination.