American Business Council (ABC) of Pakistan has proposed the Federal Board of Revenue (FBR) to maintain a tax holiday on exports of IT and IT-enabled services, as withdrawal of exemption will discourage global tech companies with offices in Pakistan to bring their money to the country.
According to the budget proposals of the ABC for 2021-22, the proposed removal of the tax holiday on exports of IT and IT-enabled services in the finance bill demonstrates the inconsistency of Government policies and large organizations will find it very difficult to make any long term investments if they believe that GoP is not going to be consistent in its policies for the technology sector.
The Tax holiday is a key and only incentive available to the IT and IT-enabled exports industry right now. It enables the industry to compete with other countries that operate in the same space i.e. Philippines, Poland, India, Egypt etc. The removal of this exemption will result in an increase in cost and will have a direct impact on revenue generation capabilities as well as new business.
The proposed tax credit scheme is a complex process that negates the Prime Minister’s vision to improve ease of doing business in the country. It will result in tax officers interpreting on a case-by-case basis, more paperwork, and eventually higher cost for companies which is extremely detrimental.
This will discourage global tech companies with offices in Pakistan to bring their money to the country to avoid being taxed hence having a direct impact on export numbers as well as remittances, ABC proposed.
ABC has also proposed to mandate digital transactions through digital channels for transactions beyond a certain size e.g., Rs. 50,000. This will enable FBR to have visibility into spending patterns in the market, without having to go through a physical audit of the company. Otherwise, remove the requirement for retaining a copy of CNIC from customers that perform their transactions electronically.
The council has also requested the government for the implementation of the cabinet-approved incentive of 5% cashback for IT exporters. In 2018, the cabinet has approved the provision of cashback at 5% for IT and IT-enabled services exporters duly verified and recognized by the state bank of Pakistan. The Council urges the Government to define the procedures and rules for this and execute this decision.
The ABC has also proposed a reduction in sales tax on payments made through Credit Cards Merchants discourage card sales to evade taxes and hide true sales.
“There is no incentive to merchant to promote the digitization of the economy. We propose a certain rebate to be given to merchants and the customer for accepting and using digital means of payments,” it added.