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TAX NEWS - June 2010

Pakistan Tax: 5% increase in corporate tax rate recommended

ISLAMABAD: Senate standing committee on finance unanimously recommended the government increase the corporate tax rate from 35% to 40% in the budget 2010-11 here on Thursday.

Senate committee met in the parliament house with Senator Ahmed Ali in the chair - on the second consecutive day of preparing recommendations for amendments in the budget 2010-11.

During the meeting, FBR Chairman said that the FBR tried to raise the rate of income tax on companies from 35 to 40 percent in budget (2010-2011). However, it was not possible during the current budget preparation exercise to raise the rate on the corporate sector and the rate should be raised in future.

FBR Member Direct Tax Policy, Israr Rauf, informed the committee that the corporate tax rate has been gradually brought down from highest level of 62 percent to 35 percent.

Some members of the committee, including Professor Khurshid Ahmed, observed that the 35 percent rate on the corporate sector is too low which should be increased at least up to 40 percent. When some committee members raised the issue of imposition of new tax on motorcycle industry, Sohail Ahmed clarified that the FBR has not levied any new tax on the motorcycle industry, as the taxation structure on this sector has remained unchanged. If the prices of motorcycles have increased, it has nothing to do with the FBR. The FBR is not authorized to fix prices of motorcycles and no new tax has been levied on this sector. It seems that the prices of the motorcycles have been increased in the name of budget. Despite the fact that no new withholding tax has been imposed on motorcycle industry, the justification of budget (2010-2011) has been given just to increase prices. The withholding tax has been levied on different sectors including motorcycle industry for the last many years.

He said that the enforcement and administrative measures taken in budget (2010-2011) has effectively checked smuggling of motorcycle spare parts. This has facilitated the local manufacturers of motorcycles and there is a visible boom in the motorcycle industry.

FBR Chairman agreed with the proposed income tax slabs for the salaried class submitted by Senator Khurshid. FBR Chairman said that the slab structure drafted by the committee member would not have any revenue implication. The FBR has agreed to re-consider the tax slabs structure for the salaried class proposed in the Finance Bill (2010).

Responding to a query on the 0.3 percent withholding tax on banking transactions, Sohail Ahmed said that the levy is purely focused on cash being deposited in the banks to bring transactions of the informal sector into documentation. The necessary rules would be issued after clearance from the State Bank of Pakistan (SBP). The SBP has to issue instructions to the banks for compliance for which the concurrence of the concerned regulator is required. The rules would clarify all the issues pertaining to the withholding tax on banking transactions.

Referring to a recent report of the Transparency International, FBR Chairman proudly said that the agency has improved the rating of taxation machinery and customs department. This clearly reflects significant reduction in the level of corruption in the tax machinery, which is evident from the Transparency International report. About the appointment of special judges, Sohail Ahmed said that the FBR could only make request to the Law and Justice Division for the appointment of special judges. However, the FBR cannot directly appoint special judges through the Finance Bill. The terms and conditions for appointment of special judges have been specified in the law, and FBR can only make request to the Ministry of Law for appointment of such judges.
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