ISLAMABAD, May 25: The ministry of finance is currently examining various proposals, including abolition of Rs45 billion annual petroleum development surcharge in the budget for 2004-05.

According to a set of budgetary proposals, submitted to the ministry of finance by the Board of Investment and obtained by Dawn here on Tuesday, petroleum prices were effecting each sector of the economy and that any increase will raise cost of doing business in Pakistan.

"We hope that the finance ministry will take into consideration the abolition of this huge petroleum development surcharge or petroleum levies as it is hurting every business," a official said.

The BoI also proposed the restoration of investment allowances and relief provided for investment in share capital of new issues, national saving schemes, own contribution to provident fund and personal pension insurance. The BoI believes that fiscal policies are discouraging domestic savings.

Since the situation of balance of payment and debt servicing is now at a comfortable level, tax holidays should be considered for under-developed areas and priority sectors.

In this behalf, it was proposed that tax reduction up to 20 per cent should be provided in the first five years to commercial production and all those industrial undertakings set up by the overseas Pakistanis.

To attract the foreign direct investment and compete with other countries in the region, it was proposed that incentives of initial depreciation allowances (IDA) under the investment policy be provided at 90 per cent of plant machinery and equipment (PME) cost across the board for all sectors.

This facility should be made available to new investment only. The BoI proposed that the existing corporate tax rates be reduced from 35 per cent, including surcharge for public companies, to 25 per cent.

Likewise, this corporate tax rates should be reduced from 41 per cent to 30 per cent for private limited companies, and for banking companies it should be brought down from 44 per cent to 40 per cent in the next budget.

"The present taxation structure of the country leads to disintegration of companies and people prefer to opt for informal sector rather than the corporate sector," the BoI asserted.

The current rates of six per cent withholding tax, under section 148 and 153, are high and invariably result in excess payment in every quarter, creating refunds thereby leading to cash flow problems for the business/industry. The BoI proposed that withholding tax should be abolished or reduced to three per cent.

Similarly, tax on dividends was also recommended to be abolished. The BoI also called for reviewing of overall tax regime as the current taxation law, where the assessees are required to make payment of advance tax on the basis of gross turnover as per the ratio computed in the finalized assessment, is not practical. The advance tax may exceed the actual tax liability and the refund process is time consuming.

"The BoI feels that there is enough justification of allowing exemption from the payment of minimum turnover tax for five years or till such time the companies start making profits and develop the tax paying capacity, whichever is earlier."

The BoI proposed that the rate of general sales tax be brought down to 10 per cent from the current 15-23 per cent. About the demand of the pharmaceutical sector for the removal of sales tax on packing material, removal of 10 per cent duty on raw materials and duty free imports of equipment, plant and machinery and lab, the BoI proposed that the demand be considered and should be rationalized in accordance with the overall policy. The five per cent customs duty be applicable as proposed for other sectors.

The ministry of finance has also been urged to rationalize the import duty on vitamins for the poultry feed industry that had been raised to 25 per cent from 10 per cent, resulting in an unjustified escalation in the cost of inputs for the industry.

The customs duty on import of specific raw material should be reduced from 20 per cent to 10 per cent. Similarly, it was proposed that customs duty on the import of crude palm oil should be reduced from Rs9,000 per ton to Rs8,500.