The Pakistan Business Council (PBC) has criticised the imposition of a super tax on corporate profits, characterising it as a penalty on the documented sector.
In its budget proposals for the upcoming fiscal year 2023-2024, the PBC submitted recommendations to the Federal Board of Revenue (FBR) underscoring the negative effects of the Finance Act of 2022’s retrospective imposition of the super tax.
According to the PBC, the super tax imposes an unreasonable burden on the well-organized documented sector, which plays an important role in job creation, income generation, and the generation of substantial tax revenues for the country. This tax measure, according to the council, is counterproductive and detrimental to the expansion of the documented sector.
The non-progressive nature of the super tax under Section 4C of the Income Tax Ordinance, 2001, is one of the primary concerns raised by the PBC. Once a certain threshold is exceeded, the tax is applied to the entire profit, disregarding the concept of marginal tax rates and the progressive basis for calculating tax liabilities. This approach is inconsistent with the principle of impartiality and discourages business investment and growth.
To address these issues, the PBC has recommended establishing specific timelines for the super tax’s applicability. The council argues that the imposition of a super tax without a defined timeline amounts to an increase in the present corporate tax rate of 29%. Considering recent economic factors such as the depreciation of the Pakistani Rupee, import restrictions, and rising interest rates, this lack of clarity and indefinite duration poses significant challenges for businesses.
Without prejudice to its previous recommendations, the PBC emphasises that the super tax should be implemented on a progressive basis, taking into account the income level of corporations. The burden of taxation would be more equitable and consistent with the principles of economic fairness and development if a progressive tax system were implemented.
The purpose of the PBC’s proposals is to ensure that businesses operating in the documented sector can continue to prosper and contribute to Pakistan’s economic growth. The council emphasises the significance of a business climate that encourages investment, job creation, and long-term development.
As the budget for fiscal year 2023-2024 takes shape, it remains unclear how the government and the FBR will resolve the Pakistan Business Council’s concerns regarding the super tax. The decisions taken in this regard will have a substantial effect on the future trajectory of the documented sector and Pakistan’s overall business environment.
