CORPORATIZATION OF ECONOMY-A DILEMMAFOR PAKISTANBY

SYED MUHAMMAD IJAZ, FCA, LL.B.

PARTNER

HUZAIMA IKRAM & IJAZ

CORPORATE ENTITIES REGISTERED WITH SECP

• 64,067TOTAL COMPANIES REGISTERED WITH SECEP

• 580PUBLIC LISTED

• 2,260PUBLIC NON LISTED

• 57,650PRIVATE

• 1,792SMCs

• 634ASSOCIATIONS NOT FOR PROFIT U/S 42

• 71COMPANIES LIMITED BY GUARENTEE U/S 43

• 228TRADE ORGANIZATIONS

• 847FOREIGN COMPANIES

• 2PUBLIC COMPANIES WITH UNLIMITED LIABILTIY

• 1PRIVATE COMPANIES WITH UNLIMITED LIABILITY

• 2COMPANIES U/S 503 (2)

COMPANIES LIMITED BY SHARES

• 62,282TOTAL COMPANIES REGISTERED WITH SECEP LIMITED BY SHARES

• 580PUBLIC LISTED

• 2,260PUBLIC NON LISTED

• 57,650PRIVATE

• 1,792SMCs

CAPITALIZAITON BREAKDOWN

PAID UP CAPITAL

FROM-UP TO

UPTO PKR 100,000

FROM 100,001 UPTO 500,000

FROM 500,001 UPTO 1,000,000

FROM 1,000,001 UPTO 10,000,000

FROM 10,000,001 UPTO 100,000,000

FROM 100,000,001 UPTO 500,000,000

FROM 500,000,001 UPTO 1,000,000,000

FROM 1,000,000,001 AND ABOVE

TOTAL

LISTED CO.

3

0

0

16

161

206

73

121

580

UNLISTED-PUBLIC

CO

389

283

102

335

634

327

80

110

2,260

PRIVATE CO.

21,518

8,736

6,321

15,867

4,297

752

80

79

57,650

SMCs.

1,118

295

168

150

57

3

1

0

1,792

TOTAL

23,028

9,314

6,591

16,368

5,149

1,288

234

310

62,282

%AGE

36.97

14.95

10.58

26.28

8.27

2.07

0.38

0.50

100.00

NEW COMPANIES REGISTERED WITHIN LAST 5 YEARS

DOMICILE OF FOREIGN COMPANIES

Country Newly incorporated companies FY Number of companies as of

2013-14 30-Jun-14

US 1 156

Uk 2 119

Fracne 1 26

Germany 2 25

China 7 45

Japan 1 38

Australia 0 20

Middle Eastern countries 2 62

Far Eastern countries 4 119

Other European countries 2 130

Other Asian countries 0 14

Other countries 0 93

Total 22 847

SECTOR WISE BREAKUP OF COMPANIESSector

Newly incorporated companies for

the financial year ending june 30,

2014

Total companies as of June 30, 2014

Auto and allied 60 787

Broadcasting and Telecasting 68 567

Cables and electric goods 42 682

Carpets and Rugs 3 71

Cement 2 102

Chemical 75 1,643

Pharmaceutical 128 1,390

Communications 173 2,662

Construction 306 3,162

Corporate agriculture farming 195 1,225

Education 132 999

Engineering 108 1,842

Finance and banking 33 1,089

Food and beverages 166 2,443

Footwear 5 75

Fuel and energy 82 1,250

Ginning 8 350

Glass and ceramics 5 260

Healthcare 68 578

Information technology 367 2,947

Insurance 11 284

Jute - 20

Leather and tanneries 16 368

Lodging 22 462

Mining and quarrying 66 572

Paper and board 87 1,142

Power generation 125 858

Real estate development 99 1,319

Services 520 7,182

Sport goods 12 199

Steel and allied 23 508

Sugar and allied 10 180

Synthetic and rayon 3 194

Textile 141 4,662

Tobacco 4 86

Tourism 421 6,706

Trading 544 7,310

Transport 99 1,286

Vanaspati and allied 23 453

Wood and wood products 11 215

Miscellaneous 324 5,937

Total 4587 64067

COMPANIES WHO FILED INCOME TAX RETURN WITH FEDERAL BOARD OF REVENUE

•23,859TAX YEAR 2013

•24,195TAX YEAR 2014

•336TAX BASE ENHANCED YOY

GAP ANALYSIS- SECP VIZ A VIZ FBR

COMPANIES REGISTERED WITH SECP

COMPANIES FILED INCOME TAX RETURN IN

TAX YEAR 2014

DIFF./NON FILERS

•64,067

•24,195

•39,872

GDP ANALYSIS OF REGIONAL COUNTRIES

Pakistan BanglaDesh SriLanka India HongKong SingaPore Malaysia Turkey

Annual data 2014a2014a 2014a

2014a 2014a 2014a 2014a 2014a

Population (m) 185.1 158.8 21.4 1,256 7.3 5.5 30.2 76

GDP (US$ m; market exchange rate) 246.6b 178.2 74.95b 2,133 289.6b 307.9 326.93b 799b

GDP (US$ m; purchasing power parity) 896.4 497 217 7,366 398 448.8 747 1,473

GDP per head (US$; market exchange rate) 1.33 1.12 3.50 1.70 39.89 56.29 10.83 10.51

GDP per head (US$; purchasing power parity) 4.84 3.13 10.13 5.87 54.82 82.05 24.76 19.37

Exchange rate (av) Respective currency:US$ 101.1b77.61b 130.6b

61.0b 7.754b 1.27 3.27b 2.19b

Historical averages (%) 2010-14 2010-14 2010-14 2010-14 2010-14 2010-14 2010-142010-14

Population growth 1.7 1.2 0.8 1.2 0.6 1.9 1.7 0.9

Real GDP growth 3.5 6.1 7.4 4.6 2.3 6.4 5.8 5.4

Real domestic demand growth 3.3 5.9 8 4.2 3.4 5.2 8.1 5.6

Inflation 9.9 7.9 6.1 7.2 3.6 3.2 2.4 8.1

Current-account balance (% of GDP) -1.3 1.3 -4.8 -3.1 3.5 20 7.4 -6.3

FDI inflows (US$ m) 0.7 0.9 913.1 1.6 34.3 20.7 4 1.6

TAX TO GDP RATIO

Country Name Country Code Indicator Name 2008 2009 2010 2011 2012

Afghanistan AFG Tax revenue (% of GDP) 6.04 8.43 9.12 8.85 7.47

Bangladesh BGD Tax revenue (% of GDP) 7.66 7.50 7.83 8.69

Hong Kong SAR, China HKG Tax revenue (% of GDP) 12.72 12.50

India IND Tax revenue (% of GDP) 10.75 9.64 10.19 8.98 10.79

Malaysia MYS Tax revenue (% of GDP) 14.66 14.94 13.74 15.24 16.10

Pakistan PAK Tax revenue (% of GDP) 9.49 8.94 9.98 9.19 10.10

Singapore SGP Tax revenue (% of GDP) 13.85 13.07 12.97 13.36 13.97

Turkey TUR Tax revenue (% of GDP) 18.52 19.16 20.49 20.14 20.38

WHY LOW CORPORATIZATION IN PAKISTAN

• Multiple taxes on same source

• Bonus Shares

• Dividend

• Dividend in specie

• Capital gain on Sale of securities

• Tax on Reserves-proposed

• Stringent withholding tax regime

• Heavy cost of withholding of taxes without any incentive for the collection agent. Instead punitive

measures are used in case of failure to deduct tax.

• Withholding of taxes even from persons otherwise not even required to file return-Like mobile users and

leaving the rich to get away by paying only withholding tax

• Highhandedness of Taxing Authorities

• Repetitive investigations/Multiple audits/Undue calling of information

• Grudges and infective attitude

• Gratifications/Teaming with tax evaders'

• Lack of knowledge on impact of Industry

WHY LOW CORPORATIZATION IN PAKISTAN-CONTINUES

• Over Taxation

• Tax rates under first Schedule

• Taxation of dividend and Interest on Securities on normal rates as compared to

concessionary rates-Proposed amendments through Finance Bill 2015-16

• Surcharge for IDPs

• Lack of desire to work hard

• Lack of co-ordination between various government tax collecting agencies

• Lack of strong field work

• Excessive Dependence on withholding taxes

• Lack of enforcement is a major issue

CURRENT UTILIZATION OF BUDGET

Total Projected Tax Receipts

Debt Servicing

Shares of Provinces

Defense Spending

Balance for Federation

• PKR (In b)=3,418

• Interest PKR (in b)= 1,280

• PKR (In b)=1,849

• PKR (In b)=781

• PKR (In b)=(492)

CORPORATE INCOME RETURN ANALYSIS- 2014 & 2013 YOY

2013 2014 YOY 2013 2014 YOY

FROM TO NO OF RTRN NO OF RTRN DIFF. AMOUNT PAID AMOUNT PAID DIFF.

PKR PKR PKR PKR PKR

- 10,653 10,782 129 - - -

- 100,000 3,529 3,059 (470) 112,302,442 100,849,166 (11,453,276)

100,000 1,000,000 4,724 4,697 (27) 1,923,160,301 1,937,450,992 14,290,691

1,000,000 10,000,000 3,376 3,832 456 11,729,700,528 13,447,256,836 1,717,556,308

10,000,000 100,000,000 1,276 1,488 212 39,616,089,471 45,460,900,733 5,844,811,262

100,000,000 500,000,000 222 239 17 46,845,311,806 50,626,052,729 3,780,740,923

500,000,000 1,000,000,000 34 49 15 22,854,782,695 33,432,369,231 10,577,586,536

1,000,000,000 45 49 4 192,778,203,515 196,166,984,865 3,388,781,350

23,859 24,195 336 315,859,550,758 341,171,864,552 25,312,313,794

TOTAL RETURNS FILED TAX YEAR 2014 & 2013 YOY

2013 2014 DIFF.

I TAX RETURNS FILED NOS NOS YOY

COMPANIES 23,859 24,195 336

AOPs 42,749 40,763 (1,986)

INDIVIDUALS 814,654 791,271 (23,383)

TOTAL 881,262 856,229 (25,033)

SOLUTION TO THE PROBLEMS

• Correcting the tax net to catch big fishes currently escaping untaxed. This can

only be achieved by improving enforcement.

• Securitization of Debts

• Taxing what FBR already has in its hands-Non filers and Nil filers

THANK YOU VERY MUCH