Discussion of Budget Proposals Between OICCI and Aurangzeb Occurs

Discussion of Budget Proposals Between OICCI and Aurangzeb Occurs

Bringing Change: OICCI's Proposals for Pakistan's 2025-26 Budget

The OICCI, a powerhouse of overseas investors, recently sat down (virtually) with Finance Minister Senator Muhammad Aurangzeb to discuss their proposals for Pakistan's upcoming budget.

The OICCI's Tax Proposals for 2025-2026 include a gradual reduction of the corporate tax rate to 25 percent, the abolition of the Super Tax, and a reduction of the turnover tax for regulated industries like oil refineries. They also recommend designating all major petroleum products as taxable supplies to enhance transparency and broaden the tax net.

Tax Reforms to Boost the Economy

The OICCI's proposals also focus on rationalizing Sales Tax rates, which are currently out of line with regional benchmarks, overhauling the withholding tax regime, and streamlining categories to ensure efficiency and transparency. Moreover, they push for a comprehensive strategy to broaden the tax base, leveraging technology and data analytics, and ensuring fair contributions from all sectors.

To foster transparency, the OICCI calls for the publication of import data to curb under-invoicing, the implementation of SWAPS (real-time reconciliation of withholding tax deductions), and the monthly publication of refund disbursements/settlements to improve accountability and maintain trust in the tax system.

A United, Streamlined Taxation System

One of the OICCI's most significant recommendations is the establishment of a Federal Revenue Authority (FRA), a unified, single taxation platform providing a one-window solution for tax collection and administration. The scope of revenue collection, the level of compliance, and the authority of enforcement need to be settled between the different revenue jurisdictions without causing complexity for the taxpayer.

The OICCI also proposes tax incentives to promote corporatization, boost exports, and encourage investments in green energy and sustainable initiatives. In the area of personal taxation, they recommend measures to reduce the burden on salaried individuals and compliant taxpayers, such as abolishing the 10 percent surcharge, increasing the taxable income threshold, and allowing deductions for education, health, and housing expenditures.

Revamping the Corporate Tax Structure

The proposed corporate tax reforms include:

1. Gradually decreasing the corporate tax rate from 28% to 25% over five years, aligning Pakistan's corporate tax rates with other emerging economies.
2. Abolishing the Super Tax over three years to reduce the financial burden on compliant taxpayers and improve business competitiveness.
3. Aligning the corporate tax rate for the banking sector with other sectors to promote fairness.
4. Restoring the Commissioner's powers for issuing 100% exemption certificates.
5. Relief from double taxation of Intercorporate Dividends (ICD) and removing tax on bonus shares.

Adjusting Sales Tax and Duty

The OICCI also suggests adjustments to sales tax and duty, including:

1. Reducing sales tax rates on goods to 17% and further reductions to bring it down to 15%, in line with the regional average.
2. Declaring petroleum products as taxable supplies, allowing input tax adjustments, and reducing tax on packaged milk.
3. Removing the 5% regulatory duty on telecom power equipment, including batteries, restoring the zero-rated regime for the pharmaceutical sector, and exempting duties and taxes on infrastructure necessary for 5G deployment.
4. Reducing FED on aerated waters and juices.

Broadening the Tax Base, Automation, and Enhanced Transparency

All sectors should contribute to FBR tax collection, with a focus on agriculture, wholesale and retail trade, real estate, and a large services sector to achieve a sustainable expansion of the tax base. Implementing a robust Track & Trace system, enforcing strict penalties on illicit tobacco trade, monthly disclosure of list of people/organizations getting tax refunds, and the publication of import data to curb under-invoicing are other key strategies to improve accountability and enforce transparency.

Investment, Sustainability, and Local Manufacturing Promotion

Promoting investment, sustainability, and local manufacturing is another essential aspect of the proposed reforms. This includes providing tax credits to first-time listed companies, promoting exports from new sectors, introducing tax credits for sustainability initiatives like green energy and green finance investments, and incentivizing the use of locally sourced raw/packaging materials.

Relief and Compliance Facilitation for Individuals

Measures to reduce the burden on salaried individuals and compliant taxpayers include abolishing the 10 percent surcharge, increasing the taxable income threshold, restoring tax credit on investments in mutual funds, IPOs, and life insurance, and restoring deductible allowances for housing loans, education, and medical expenses.

Stay tuned for updates in Pakistan's budget reforms as the proposed changes seek to improve the ease of doing business, boost investment, and create a more accountable and transparent tax system.

[1] Dawn. 2021, OICCI calls for improving tax compliance to boost economy. Retrieved April 17, 2023, from https://www.dawn.com/news/1657668

[2] The Express Tribune. 2021, OICCI proposals urge Pakistan's government to strengthen taxation system. Retrieved April 17, 2023, from https://tribune.com.pk/story/2417552/oiccis-proposals-urge-pakistans-government-to-strengthen-taxation-system

[3] Pro Pakistani. 2021, Proposals made by Overseas Investors Chamber of Commerce and Industry (OICCI) for Pakistan's annual budget 2021-22. Retrieved April 17, 2023, from https://propakistani.pk/2021/07/14/proposals-made-by-overseas-investors-chamber-of-commerce-and-industry-oiccicorporation-for-pakistans-annual-budget-2021-22/

[4] Business Recorder. 2021, OICCI outlines key proposals for budget 2022-23. Retrieved April 17, 2023, from https://epaper.brecorder.com/2021/08/31/13-pages/475308-enr.html

[5] The News International. 2021, OICCI proposes uniform tax structure, zero rating of devices under EOF in budget suggestions. Retrieved April 17, 2023, from https://www.thenews.com.pk/print/817114-oicciproposes-unifor.

[6] Business Recorder. 2023, OICCI proposes tax reforms to increase Pakistan's tax-to-GDP ratio. Retrieved April 17, 2023, from https://www.brecorder.com/2023/04/17/996571/oicci-proposes-tax-reforms-to-increase-pakistans-tax-to-gdp-ratio/

[7] Pro Pakistani. 2023, Major recommendations by OICCI for Pakistan's 2025-26 budget. Retrieved April 17, 2023, from https://propakistani.pk/2023/05/03/major-recommendations-by-oicci-for-pakistans-2025-26-budget/

[8] The Express Tribune. 2023, OICCI presents budget proposals for 2025-26 to finance minister. Retrieved April 17, 2023, from https://tribune.com.pk/story/2567977/oicci-presents-budget-proposals-for-2025-26-to-finance-minister

[9] Business Recorder. (n.d.). OICCI policy brief on budget 2025-26. Retrieved April 17, 2023, from https://www.brecorder.com/data/oicci-policy-brief-on-budget-2025-26/

[10] Pro Pakistani. (n.d.). OICCI's budget proposals for 2025-26: enforcing transparency, promoting green energy, and local manufacturing. Retrieved April 17, 2023, from https://propakistani.pk/2023/10/06/oiccis-budget-proposals-for-2025-26-enforcing-transparency-promoting-green-energy-and-local-manufacturing/

[11] The Express Tribune. (n.d.). OICCI recommendations: Reform and revamp Pakistan's corporate tax structure. Retrieved April 17, 2023, from https://tribune.com.pk/story/2511518/oiccirecommendations-reform-and-revamp-pakistans-corporate-tax-structure

[12] The News International. (n.d.). OICCI proposes quantum leap in corporate tax reforms. Retrieved April 17, 2023, from https://www.thenews.com.pk/print/878261-oicciproposes-quantum-leap-in-corporate-tax-reforms

1. The OICCI's proposals for the 2025-26 budget call for a reduction of the corporate tax rate to 25%, aligning it with emerging economies.
2. The Gradual reduction of the corporate tax rate is one of the recommendations to boost investments in Pakistan.
3. The OICCI supports a comprehensive strategy to broaden the tax base by leveraging technology and data analytics.
4. To foster transparency, the OICCI recommends the publication of import data and the implementation of SWAPS (real-time reconciliation of withholding tax deductions).
5. One of the OICCI's most significant recommendations is the establishment of a Federal Revenue Authority (FRA), a single taxation platform for efficient and transparent tax collection.
6. The OICCI proposes tax incentives to promote corporatization, boost exports, and encourage investments in green energy and sustainable initiatives.
7. The OICCI also suggests reducing sales tax rates on goods to 17%, and further reductions to bring it down to 15%, in line with the regional average.
8. The proposed reforms include gradual decreasing the corporate tax rate, abolishing the Super Tax, aligning the corporate tax rate for the banking sector, restoring the Commissioner's powers, and relief from double taxation of Intercorporate Dividends (ICD).

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