Lahore: While identifying power shortages and inflation as two key challenges being faced by the economy, the Lahore chamber of Commerce and Industry (LCCI) and Associate Chartered Certified Accountants (ACCA) Thursday called for a long-term strategy to create opportunities for investment, industrialization and employment generation.
The consensus was developed at a pre-budget discussion organized by ACCA Pakistan at Lahore Chamber of Commerce and Industry with an aim to contribute its research and insight towards healthy fiscal measures in the country.
The discussion was moderated by LCCI President Irfan Qaiser Sheikh, Chief Commissioner, LTU Mustafa Ashraf, President Pakistan Tax Bar Association Zulfiqar Khan, former LCCI EC member Shahzad Azam Khan, Muhamamd Awais, Irfan Ilyas and Muhammad Arshad. Head ACCA Arif Masud Mirza opened the event. Each participant came in with unique perspective and spoke passionately about budget recommendations. The Speakers were of the view that the solution to slow economic growth lies in the revival of taxation policies and improved tax collection system.
The ACCA and LCCI drew policy makers’ attention to meltdown being witness by all the segments of the economy. The LCCI President Irfan Qaiser Sheikh brought in the views of the business community saying that the budget for the year 2012-13 must be focused on energy sector as country’s economic revival hinges on availability of cheaper and uninterrupted power and gas supply.
He said that austerity should be the theme of the budget document and for the purpose the government would have to cut off the unnecessary expenditures as excessive government borrowing was not only resulting in higher interest rates but also restricting availability of cheaper liquidity for the private sector.
The LCCI President urged the government to broaden the tax net by bringing the agriculture and services sectors into the tax net. Public Sector Enterprises (PSEs) like PIA, Railways and Pakistan Steel Mills, generating a loss of Rs. 400 billion annually should be managed professionally or be privatized to avoid the huge loss to the national exchequer.
Rate of minimum income tax of 1% of turnover under section 113 is too high. It is suggested that rate be reduced to 0.5% of the turnover. Minimum Turnover Tax u/s 113 shall not be levied on entities which are bearing loses. If, however, government intends to apply the minimum tax rate, it should not exceed previous 0.5% tax of the turnover.
While 0.2% rate should be applied on distributors, whole sellers and retailers, due to their very thin margin of profit. Corporate tax shall be reduced to 25% from 35% for limited companies quoted on stock exchanges. The rate of withholding tax on contracts should be reduced to 1 percent.
Mustafa Ashraf brought in the policy makers perspective. ACCAs moderator bridged the gap and differences between the two to ensure that workable recommendations could be drawn.
In order to promote private sector investment in Pakistan, the panel proposed that strong fiscal policies backed by long term stability are the need of the hour for a sustainable economic growth of Pakistan. On the front of indirect taxation, the panel concluded that the recent figures released by the government show clearly that there is a greater share of indirect taxes in total revenue from tax collection.
This trend is totally opposite to developed world where direct taxes have a greater share. Even in 36.03% contribution of direct taxes revenue from presumptive tax regimes is high which is supposed to be replaced by efficient and effective direct tax collection policy measures.
In perspective of direct taxation, rates of taxation of companies are high and it needs to be lowered. However, the taxation rate of bank companies needs to be kept at existing position. The flat rate of taxation of AOP should be reviewed and rates same as individuals may be applied.
ACCA Pakistan is of the view that improvement in the tax base essentially requires elimination of all discriminations between tax payers with adequate penalties for defaulters. Capital Gains arising out of immoveable property and personal belongings are currently not taxable. However, on the same lines of taxing the capital gains from capital market, these items may also be brought into the tax net, based on period of holding.
This would mainly settle the prices of real estate, making it viable for genuine seekers of property ACCA Pakistan further proposed that enterprise zones be set up to encourage the industry specially labour intensive and technology industry. Extra tax exemption to local and FDI should be allowed in the areas of power and energy, transportation and storage, manufacturing / Plant and machinery, technology and research.
For more information, contact:
Lahore Chamber of Commerce and Industry (LCCI)
Lahore -54000, Pakistan
Tel: +9242 111 222 499
Fax: +92 42 636 8854