High taxes and energy costs push businesses out of Pakistan

Islamabad: A Senate subcommittee has raised serious concerns over Pakistan’s tax system after being told that companies are reducing operations or leaving the country because of high electricity costs, heavy taxes and difficult business rules. The committee also warned the Finance Secretary that continued absence from its meetings could lead to the matter being sent to the Senate Privileges Committee.

The Sub-Committee of the Senate Standing Committee on Finance and Revenue, chaired by Senator Muhammad Talha Mahmood, reviewed Federal Board of Revenue taxation policies and their impact on businesses, investment and economic activity.

Senator Talha Mahmood said the main aim was to find ways to increase economic activity and create a better environment for businesses. He said many companies were either reducing their operations or leaving Pakistan because energy costs were too high and the tax system was pressuring businesses too much.

The committee also expressed serious concern over the absence of the Finance Secretary. Senator Talha Mahmood directed the Finance Secretary to attend the next meeting and warned that another absence could result in the matter being referred to the Senate Privileges Committee.

Business representatives also strongly criticised the current taxation system. Mian Zahid Hussain of the Federation of Pakistan Chambers of Commerce and Industry said national policy appeared to focus more on collecting revenue than on increasing economic growth.

He called for a reduction in advance taxes and withholding taxes. He also asked the government to review customs duties, simplify tax audits and reconsider factory surveillance systems.

According to him, complicated tax procedures and compliance requirements were increasing the cost of doing business and discouraging industrial growth. Another business representative, Mr Jadoon, Vice President of a Chamber of Commerce, said Pakistan had competitive labour costs but businesses were still struggling because of high electricity tariffs and regulatory pressure.

He said the government should bring more businesses and sectors into the tax system instead of repeatedly increasing pressure on people and companies that were already paying taxes. FBR officials defended recent government measures, telling the committee that taxation policies were influenced by Pakistan’s import requirements and financial limitations.

Officials said the government had introduced tax relief for salaried people, reduced super tax and removed super tax for exporters. The committee was informed that the government accepted a revenue impact of around Rs 359 billion while trying to provide relief to businesses and increase economic activity.

FBR officials also said exporters facilitation committees had been established in Karachi, Lahore, Sialkot, Faisalabad, Islamabad and Multan to deal with tax related complaints and problems. Senator Talha Mahmood questioned whether current government policies were actually successful in attracting foreign investment.

He sought details about investor protection and the rules for transferring shares. The committee directed the relevant authorities to provide a complete briefing on the existing system. The committee also discussed reforms FBR is introducing to simplify tax procedures.

FBR officials said work was underway on a mobile application for tax reimbursements. They also said special facilitation days were being arranged in major commercial centres to help taxpayers deal with their problems. The ongoing goods transport strike also came under serious discussion.

Senator Talha Mahmood said the strike was damaging trade and business activity and criticised delays in resolving the issue. He warned that perishable goods could be destroyed while businesses were also facing heavy financial losses because containers were being held for longer periods.

The committee said the government should immediately open talks with transporters and other affected groups. Members warned that continued disruption could damage Pakistan’s trade and also hurt the country’s international business reputation.

The sub committee strongly recommended immediate talks with transporters to restore normal business operations. Senator Talha Mahmood also called for faster action when taxpayers make genuine mistakes in their tax returns. He recommended that if a taxpayer corrects an honest mistake, the blocked account should be restored within 24 to 48 hours.

He also called for a better biometric verification system so that taxpayers could complete required procedures more easily. The committee further discussed market closure timings. Senator Talha Mahmood said closing markets early was hurting business activity and reducing traders opportunities to earn income.

The convener said Pakistan could achieve sustainable economic growth only through business friendly policies and transparent governance. He stressed that competent and honest officials should be appointed to important positions so they could create policies that support investment, industry and entrepreneurship.