ISLAMABAD: Federal Board of Revenue has received three tax policy proposals from the Board of Investment (BoI) for fixation of an investment threshold to grant tax holidays to foreign investors, reduction in corporate income tax rate and cut in the standard rate of 17 percent sales tax, sources said.
Sources said that BoI had requested its Executive Committee Members to submit the proposals for investment promotion and facilitation of the foreign companies.
The Executive Committee Members of the BoI have submitted three tax policy proposals. The first one suggests reduction in the income tax rates as compared to rates of other developing countries. It aims at bringing down the cost of doing business. Second suggests fixation of an investment threshold for giving a tax holiday for a defined period. Third one suggests levy of sales tax as a Value Added Tax (VAT) on the retailers, otherwise the standard sales tax rate should be drastically reduced.
FBR is examining the tax policy proposals of the BoI in light of the decisions taken in last budget to promote investment through taxation measures. About the reduction in income tax rate, an official said that through Finance Act 2013, a proviso has been added in Division II of Part-I in the First Schedule of the Income Tax Ordinance 2001, providing that the rate of tax imposed on the taxable income of a company other than a banking company shall be 34 percent for the tax year 2014.
This means that the rate of Income Tax for the Tax Year 2013 shall be 35 percent and for the Tax Year 2014 the rate of income tax shall be 34 percent on the taxable income of a company.
BoI has already requested FBR to withdraw the decision of increase in the sales tax rate from 16 to 17 percent in budget (2013-14) to avoid hike in prices of commodities.
Sources said that BoI and FBR had discussed the taxation issues being faced by Overseas Investors Chamber of Commerce and Industry (OICCI) in October 2013.
The OICCI appreciated the government decision on reduction of corporate tax rate by one percent to 34 percent from 35 percent and a proposed further reduction in subsequent years. The business community argued that the reduction of initial depreciation allowance on plant and machinery from 50 percent to 25 percent would cause an adverse impact on new investment. Therefore, they proposed that it should be maintained at 50 percent.
They showed their apprehensions that sales tax rate in the country was already high and one percent increase would further increase prices and put more pressure on low and middle income groups, sources added.
