The finance ministry has agreed to a proposal of the International Monetary Fund on slashing the corporate income tax and rationalizing of import tariff structures in the upcoming budget. The agreement would insulate the business interests of corporations affected badly from the headwinds of last year’s political turbulence, top finance officials said, defending their stance.
The insistence from the multilateral lending agency on impending tax policies centring the budget for 2014-2015 has been imposed under its extended credit facility programme.
The IMF, however, refrained from outlining any strategy on offsetting the revenue losses to be incurred by the government through implementing the proposed prescriptions on taxation policies, a senior finance official maintained.
On the other hand, the revenue board officials said the taxpaying individuals might bear the brunt of the revenue impact of the agreement reached between the government and the IMF on corporate tax.
‘Over the medium term, we will continue to rationalise import tariff structures (including the level and dispersion of tariff rates), and will work on a plan to overhaul the corporate income tax by gradually reducing the rate while broadening the base, with the aim of increasing overall corporate tax collections,’ reads the memorandum of economic and financial policies, prepared on the basis of agreed issues between the IMF and the finance ministry.
The fiscal issues were discussed and agreed upon during a two-week visit of an ECF mission of the fund that ended on April 2, sources said.
Currently, the highest corporate tax is 45 per cent imposed on non-listed mobile and cigarette companies, which is five per cent lower for the listed ones of similar categories.
The tax payable by banks and insurance companies is 42.5 per cent, public traded other entities at 27.5 per cent and non-publicly traded companies at the rate of 37.5 per cent.
The National Board of Revenue officials said around 60 per cent earnings generating from income tax comes from corporate tax, while the rest from individuals.
The leading business chambers and associations have long demanded cut in corporate taxes for the sake of employment generation and expansion in the industrialisation.
Senior tax officials said they were yet to embark on remodeling the tax structures as suggested by the IMF, but said any cut might affect individual tax payers as the NBR has to keep the growth rate of around 15 to 20 per cent on earnings from income tax.
‘It is obvious that any rate cut will lead to lower income,’ a member of the NBR told New Age on Thursday.
The highest individual tax of 25 per cent might see an upward revision to adjust the loss, he explained.
Another revenue board official said the highest customs duty of 25 per cent that is levied mostly on finished and luxurious products might see a reduction in their duties with eliminating tariff rates dispersion on different imported goods to a great extent.
-With New Age input
