American investors disappointed by the federal govt. budget

KARACHI: American investors have expressed concerns over the lack of initiatives in the 2017-18 budget to broaden the tax net and simplify procedural requirements for existing taxpayers.

In order to spur investment in plant and machinery, American investors were looking for some taxation relief measures, such as the reduction of turnover tax from one per cent to 0.5pc. However, this was enhanced to 1.25pc while there was no reduction in the duty on basic raw material.

“The implementation of predictable, consistent and transparent economic policies is a prerequisite for attracting investment, creating jobs and growing the economy. Taxation policy measures should focus on the overall impact to the business environment, therefore improving the cost of doing business without burdening existing taxpayers,” said Sami Ahmed, president of the American Business Council (ABC) of Pakistan.

The ABC chief was of the view that although certain aspects of the budget, like reducing the corporate tax rate, were favourable to investment, additional levies nullify all benefits of the reduced rate. He said the federal government imposed a 4pc, one-time super tax on banking companies and 3pc on individuals and other companies having an annual income of Rs500 million in the 2015-16 budget.

This was done to collect funds for the rehabilitation of temporarily displaced persons, he said, noting that the tax has continued ever since.

Some of the suggestions in the budget, like the 10pc tax on companies that do not distribute 40pc of their profit as dividend, will severely impact growth because companies will not have the funds available to invest in expansion projects, he said.

The increase in minimum tax from 1pc to 1.25pc is perceived as unfavourable for companies. This may substantially increase the effective tax rate beyond the corporate rate of 30pc for large manufacturing companies.

This may bring Pakistan into the highest corporate tax bracket of over 30pc as opposed to other countries like Sri Lanka (15pc), Bangladesh (25pc) and Vietnam (22pc).

The ABC is one of the largest investor groups in Pakistan with 67 members — most of them represent Fortune 500 companies. They operate in various sectors i.e. healthcare, financial services, information technology, chemical and fertilisers, energy, FMCG, food and beverage and oil. Its members have cumulative gross revenue of over $4bn.