2021-04-23 07:41:07
Premature reversal of tax exemption hurt investors’ sentiment: PBC
Pakistan Business Council (PBC) has said that the premature reversal of tax exemption hurt the investor sentiments.
In a letter sent to Finance Minister Shaukat Tarin, the PBC said that the recent reversal of tax exemptions, some which had just a few years to run, and others which were conceptually aimed at promoting scale and consolidation through formation of groups, wider shareholding through listing, and resultant improved governance and formalization of the economy have hurt the investor sentiment.
“We urge you to restore the incentive to list companies, exempt inter-corporate dividends from tax (and from withholding tax), allow corporate players in agriculture to avail the same tax benefits as the unincorporated and restore the tax benefits on income arising from use of intellectual property abroad. The earlier termination of tax credits on investment in plant and machinery also needs to e reversed,” the PBC said.
The business council about the fiscal targets said that a 27 percent increase in the tax target for fiscal year 2021/2022, in an economy forecast to grow at a nominal rate of under 14 percent, with little evidence of improvement in FBR’s capability to broaden the tax base, bodes ill for existing tax-payers.
“Successive governments have lacked the political will to pursue non-taxpayers. Relying on existing taxpayers for additional revenue accelerates the informalization of the economy,” it said.
The PBC has long advocated for the separation of fiscal policy from collection of taxes and for addressing the talent and technology gaps that prevent the FBR from broadening the tax base.
“Unrealistic tax targets is putting the cart before the horse. Taxing the already taxed is akin to killing the goose that lays the golden eggs,” the PBC said.
Fundamental fiscal reforms will take time to deliver, and the benefits will be sustainable. We must not be distracted by short-term targets.
Regarding energy costs, the PBC said that the mooted 27 percent increase in power tariff, on top of the already uncompetitive energy cost, the burden of which will fall entirely on the shoulders of honest customers, is not a growth driver.
The narrative on denying the five main export sectors of energy at a regionally competitive cost and forcing the captive power producers to switch to the grid, reliability of which is yet unproven, does not portend well for exports.
Efforts should instead be focused on fixing the inefficiency and losses of transmission and distribution. Ominously, the delay in settlement of the agreed dues of the IPP’s threatens the gains made on renegotiating capacity charges. Industry, both export oriented and domestic is the engine of employment.
Burdening it with the cost of systemic inefficiencies and cross subsidies to residential users impedes its competitiveness and restricts its capability to create jobs.
Subsidies are best addressed through the Ehsaas Programme. Allow industry to create livelihoods and generate taxable revenues. Facilitate the major export sector through the much-awaited Textiles Policy.
The PBC is encouraged by the State Bank of Pakistan’s differentiated treatment of demand-pull and supply/utility cost-push inflation. However, if the latter causes remain unchecked, there is a high risk of a multiplier effect on core inflation. Higher borrowing costs on this account will also sap growth.
The business council said that the Temporary Economic Refinance Facility (TERF) which lapsed in March led directly to over Rs400 billion investment in plant and machinery and indirectly to an approx. Rs300 billion investment in land and industrial buildings.
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